MYTH: An Appraiser is Hired by the Borrower.
FACT: Even though the borrower may be responsible for the cost of an appraisal, appraisers are hired by lenders. Appraisers provide an analysis of the collateral, so the lenders understand the value of a property when making the loan decision.
MYTH: The money put into a home translates dollar-for-dollar into a higher appraisal.
FACT: The cost put into a home improvement project may very well add value to a home; however, the value of any improvements are based on what the market is willing to pay for them, and may not necessarily correlate to the cost. Not all renovations positively impact property values.
MYTH: Appraisers set the value of a home.
FACT: Appraisers don't set the value of a home, nor do they confirm a home's sale price. Their role is to produce a credible opinion of value which reflects the current market.
MYTH: Appraisers and Home Inspectors perform the same function.
FACT: Though both provide crucial information, their roles are very different. An appraiser provides an objective, unbiased analysis so the lender can better understand the value of a property. An inspector is typically hired by the borrower and performs an objective visual examination of the physical structure and systems of a house to ensure the structural integrity of the property.
MYTH: The most important factor of an appraisal is the square footage of a home.
FACT: An appraisal is based on number of considerations, including a house's size, location, condition, age, quality, and more. Such characteristics are analyzed in relation to recent sales of comparable properties.
These Myths and Facts were provided by the The Appraisal Foundation. www.appraisalfoundation.org
COST VS VALUE IN
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2011-12 National Averages
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From: Remodeling magazine November 2011 Posted on: November 4, 2011
Remodeling Cost vs. Value Report 2011-12
Three years of dropping construction costs have not been enough to counter the steeper drop in house prices. But the rate of decline is slowing, and some markets are showing signs of a steady if slow recovery.
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For national averages, the confidence interval is 95% +/-1.5 (i.e., 95% of the time, national results for this survey will fall within 1.5 points to either side of the results published here). Confidence intervals for each of the nine regions are as follows:
A sluggish housing market continues to push down remodeling return on investment. Since its peak in 2005 at 86.7%, the overall average cost-value ratio has dropped 29 points to 57.7% (see “Cost vs. Value 9-Year Trend,”).
High remodeling construction costs are only partly responsible. Project costs continue to drop, although more slowly: costs decreased 6.9% in 2009, 2.3% in 2010, and just 1.9% this year. Decreasing cost usually results in a higher cost-value ratio, except when resale value decreases even faster. And that is the case once again this year, when continued volatility in housing prices has pushed average project resale values down 6.0%. Though the rate of change here is also slowing, the decrease in resale value is more than enough to counter the positive effect of lower costs.
Some markets are performing better than others. The average cost-value ratio for cities in the Pacific region is 71.3%, due largely to higher resale values (see “Regional Comparison,”). The West South Central and the South Atlantic regions are also well-above average. High costs and low resale values keep remodeling return on investment below average in the Middle Atlantic and East North Central regions, while the West North Central cities rank lowest at 49.5%.
Even in markets where remodeling activity is showing signs of recovery, homeowners have given remodelers smaller budgets to work with. Elsewhere, existing home sales and cash-out mortgage refinances, traditional stimulants to remodeling activity, have not yet rebounded, and homeowner uncertainty about job security, home equity, and the overall economy have stifled remodeling investment.
The Bright Side
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That said, there is evidence that the future for remodeling is bright. Hanley Wood’s recent “Housing 360” research on consumer attitudes toward housing shows that 42% of homeowners believe it is a good time to remodel. (Hanley Wood publishes REMODELING magazine.) That number increases to 56% when household income is $100,000-plus, and it is 54% when home value is more than $500,000.
The research also suggests that tight credit is not a major impediment — 80% of respondents say they pay for remodeling with cash savings. And it confirms that 60% of homeowners 50 and older intend to stay in their homes through retirement, which will create demand for aging-in-place remodeling.
Replacements Still on Top
The Housing 360 research also shows that maintenance, repair, and replacement projects take precedence with homeowners. Cost vs. Value data confirm this once again this year, as replacement projects continue to perform better in resale value than other types of remodeling projects (see “Replacement vs. Remodeling,”). Seven of the 10 top-ranked projects are siding-, window-, or door-replacement projects and their cost-value ratio is an above-average 71.6%.
The high value of replacements is partly due to their relatively low cost — with the exception of the roofing projects, all replacement projects are priced at less than $19,000. In addition, most replacement projects immediately improve curb appeal, and the use of durable, low-maintenance replacement materials appeals to home buyers who increasingly are looking to reduce both the operational and maintenance costs of their homes.
The Attic Bedroom project is in the top 10 for the third year in a row, despite being the most expensive project in that group, averaging $50,148 nationally. One possible reason for the high value placed on this project, which is ranked third overall (72.5%), is that it is the least expensive way to add a bathroom and bedroom, and it does so within the home’s existing footprint.
It is also worth noting that Minor Kitchen Remodel is fourth overall (72.1%), two places better than last year. At an average cost nationally of just under $20,000, this project is the interior version of a replacement and includes new cabinet door and drawer fronts and hardware, as well as new countertops and appliances.
Not surprisingly, since 2004, when Minor Kitchen Remodel was added to the project list, it has been the best-performing K&B project in every year but one.
—Sal Alfano, editorial director, REMODELING.
Visit the official website of the Cost vs. Value Report to download a PDF containing side-by-side national, regional, and city data tables. Or get the updated 2011–12 Cost vs. Value iPhone app at the AppStore.
In cooperation with Remodeling magazine, we bring you the average cost recouped for 35 home improvement projects.
TOP 5 PROJECTS
Get tips from experts on how to execute the projects that bring the greatest return.
Find detailed information on how projects fared in 80 U.S. cities. Plus, download PDFs of individual city reports and use a data comparison tool to see how returns differ from year to year.
Go to www.costvsvalue.com.
How We Get the Numbers
Construction cost estimates are generated by HomeTech Information Systems (www.hometechonline.com) of Bethesda, Md., which takes into account construction commodity data and labor cost information from a nationwide network of remodeling contractors. The company prepares a detailed construction estimate for each project and then adjusts this baseline cost for each city to account for regional pricing variations. However, project costs are based on estimates for hypothetical projects, with no reliable way to accommodate local and short-term fluctuations in supply and demand. Resale value data for each project are aggregated from estimates provided by REALTORS®. E-mail surveys were sent to some 150,000 appraisers, sales agents, and brokers in the summer of 2010, and more than 3,000 participated. Respondents were instructed not to make judgments about the motivation of the home owner in the decision to undertake the remodeling project or to sell the house.
Using the Data
The Cost vs. Value Report provides an accurate snapshot of the national housing market, but it can’t be applied accurately to an individual remodeling project for a particular address. Resale value is one factor among many that a home owner must take into account when making the decision to remodel. Although the costs used in the report are based on itemized estimates, the projects are hypothetical. When comparing the data to actual remodeling costs in your area, small differences in the scope of a project or quality of finishes and accessories can dramatically affect the price. Although the distinction between "midrange" and "upscale" projects provides a range of pricing, it can’t account for extreme variations in pricing that many markets experienced in 2010.
Slumping home values pulled the overall cost-to-value ratio down to its lowest level this decade, extending the downward trend that began in 2006. In fact, the slide from 63.8 percent to 60.0 percent in costs recouped is a slightly greater than last year’s 3.5-point drop. Projects were more affordable to complete, with construction costs down 10.4 percent overall, but those lower costs were overmatched by a 15.8 percent drop in estimated resale values, the biggest decline in the last eight years.
TOP 5: First Impressions Matter
Looking to convince dubious sellers that smart upgrades are worth it? This year’s Cost vs. Value Report, by Remodeling magazine, provides ample support. The annual survey uses input from REALTORS® in 80 cities to rank home remodeling projects according to those that bring the greatest cost recovered at resale. And looking at the five projects that topped the list, it’s clear that first impressions really do matter when sellers list their home.
Big-bang projects can make or break a sale from the moment potential buyers exit their car. A midrange entry door replacement brings the highest payback at a national average of 102.1 percent, followed by a midrange garage door replacement, at 83.9 percent, and an upscale redo of the siding at 80 percent of the cost. Step into the home, and a midrange kitchen remodel recoups an average 72.8 percent. Gaze into the backyard, where a wood deck addition also generates a 72.8 percent return.
Also noteworthy in this slow-growing economy is that four of the top five projects are "midrange" projects aimed at budget-conscious sellers. If sellers still balk at the price tag, take note of our tips for completing the projects on a tidy budget.
PROJECT 1: Entry Door Replacement (Steel)
Resale value $1,243
Cost recouped 102.1%
What this project entails: Remove an existing 3-foot-by-6-foot-8-inch entry door and jambs and replace it with a new 20-gauge steel unit, including a clear dual-pane half-glass panel, jambs, and an aluminum threshold with a composite stop. The door is factory finished with the same color on both sides. Exterior brick-mold and 2.5-inch interior colonial or ranch casings in poplar or an equal choice are prefinished to match the door color. Replace the existing lock set with a new bored lock with a brass or antique brass finish.
A new entry door can make a big splash, but only if it complements the style of the house. "The biggest mistake people make is to choose a door that doesn’t match the neighborhood or home," says Donnie Worley, broker at RE/MAX Real Estate Service in Sanford, N.C. "You won’t recoup the money at resale, and it might look funny. For high-end homes, leaded glass may be appropriate. But in a more moderately priced home, a regular steel door painted in a color that complements the home’s trim will make a bigger impact."
Sellers can get their money’s worth with online research before a purchase, says Peter McCluskey, owner of McCluskey Construction, Realty, and Loans in San Francisco. "Identify the type of steel, whether the door has been primed with a rust inhibitor, how many coats of finish paint have been added, and whether it’s insulated and if so with what insulation rating," McCluskey says. "An alternative to finish paint is powder coating. It’s more like glue than paint and generally better than nonpowder coating."
Finally, thoroughly inspect the door before buying and installing it. "Steel doors can dent easily, and you can’t fix dents," says Taylor Joe Goldsmith, vice president of marketing and sales at Joe Goldsmith Construction Inc. in Lakeland, Fla. "Make sure the door is in good condition before you purchase it."
Replacement projects have always performed better in resale value than other types of remodeling projects, partly because they’re among the least expensive.
PROJECT 2: Garage Door Replacement
Resale value $1,083
Cost recouped 83.9%
What this project entails: Remove and dispose of the existing 16-by-7-foot garage door and tracks. Install a new 4-section garage door on new galvanized steel tracks; reuse the existing motorized opener. The new door is uninsulated, single-layer, embossed steel with two coats of baked-on paint, galvanized steel hinges, and nylon rollers. 10-year limited warranty.
Home owners should be careful when choosing a garage door because it’s easy to buy a more expensive product than what’s necessary. In many cases, a basic door will do the job, McCluskey says. "There are a few standard garage doors priced around $600, and installed they might be twice that," he says. "If you want something that looks like a carriage door, expect to pay three times as much."
Sellers should also consider how potential buyers might use the garage. A selling point for garage tinkerers might be windows or upgraded insulation. "Lots of people don’t even park vehicles in their garage but instead use it as their workshop," says Goldsmith. "In the winter, an insulated door will knock the edge off of the cold and will also keep the garage cool in the summer."
Windows allow in natural light. "That’s pretty important and often overlooked," McCluskey says. "Windows aren’t typically a large extra expense, costing about $100 extra. But they make an enormous difference in the usability of your garage. If it’s dark inside, you can’t do anything without opening the door."
Another potential selling point is a belt-driven garage door opener, which costs about $100 more than a chain-driven model. "A chain drive is really noisy," McCluskey says. "With a belt, you can hardly hear the door move."
This project is a new addition for the 2010–11 report, in recognition that curb appeal continues to play a strong role in a home’s resale value.
PROJECT 3: Siding Replacement
Resale value $10,707
Cost recouped 80.0%
What this project entails: Replace 1,250 square feet of existing siding with new fiber-cement siding, factory primed and factory painted. Include all 4/4 (1-inch) and 5/4 (1.25-inch) trim using either fiber-cement boards or cellular PVC.
"Siding materials can vary widely, so home owners should be sure they’re getting actual cement siding, rather than pressboard or other composite materials," says McCluskey. "Look on the Internet at the specifications on the various cement siding products. There are no standard materials, so you have to know what materials are being used so you can compare apples to apples."
Home owners should also ask siding contractors how much of an overlap, called the "lap," there will be on each board. "This is one of these ‘duh’ things," says Goldsmith. "I live in a historic district, and I’ve seen homes in which the lap is three inches, which gives siding a wood look, instead of the maximum lap of six inches. Those home owners are wasting materials. Ask how big a lap contractors will use and whether it would save on materials and lower the cost to increase the lap."
Finally, home owners should consider prepainted siding, which they can then tout to potential buyers. "That can save home owners money," says McCluskey. "They won’t have to have the siding repainted every few years."
Since it was added to the survey in 2005, fiber-cement siding replacement has ranked first among projects costing $5,000 or more.
PROJECT 4: Kitchen Remodel (Minor)
Resale value $15,790
Cost recouped 72.8%
What this project entails: In a functional but dated 200-square-foot kitchen with 30 linear feet of cabinetry and countertops, leave cabinet boxes in place but replace the fronts with new raised-panel wood doors and drawers, including new hardware. Replace the wall oven and cooktop with new energy-efficient models. Replace laminate countertops; install a mid-priced sink and faucet. Repaint the trim, add wall covering, and remove and replace resilient flooring.
"Too often, home owners overimprove their kitchen," says Adam Bosworth, a sales associate at Peggy Parker Real Estate LLC in Norwich, N.Y. "That’s not cost-effective unless they’ll stay in the house a long time."
To save a good chunk of money on a kitchen remodel, keep your existing electrical wiring and plumbing in place, Bosworth says.
Another idea: Considering painting your cabinets instead of buying new ones, advises Jude Herr, broker-owner of Boulder Area Realty in Boulder, Colo. And while many home owners opt for laminate flooring that resembles wood, Herr says ceramic tile is a smarter option. "With a laminate, you may get a negative reaction," she says. "You can buy nice ceramic tile for the same amount of money as wood laminates."
However, do consider a laminate countertop. "The most cost-effective way to give a kitchen a better look is with a laminate," says Jeff Carbone, a general contractor and sales associate at Coldwell Banker Premiere, REALTORS®, in Southington, Conn. "The selections today are very impressive, with many mimicking quite well the look of marble, granite, or other natural stones."
Finally, to save money, do some of the work yourself. For example, tell your contractor that you’ll remove the cabinets, advises Bosworth. "Ask your contractor to let you know when he’s done with the drywall," adds Herr. "Then do the painting yourself before cabinets are installed, patching nail holes or scratch marks later. That will save you the cost of painting, and it’s easier than painting afterward, when you have to work around the cabinets."
The minor kitchen remodel may carry a high price tag, but it’s a relatively inexpensive face-lift to what many buyers consider the most important room in the home.
PROJECT 5: Deck Addition (Wood)
Resale value $7,986
What this project entails: Add a 16-by-20-foot deck using pressure-treated joists supported by 4-by-4-foot posts anchored to concrete piers. Install pressure-treated deck boards in a simple linear pattern. Include a built-in bench and planter of the same decking material. Include stairs, assuming three steps to grade. Provide a complete railing system using pressure-treated wood posts, railings, and balusters.
A new wood deck can look stunning, but if not done correctly it could turn into a drawback to buyers. Home owners should also be sure a new deck isn’t too big or small. "Home owners can add an 8-by-8-foot wood deck, but it’s so small the space seems useless," says Bosworth. "Or they can put on a deck that spans the length of the home. That’s great for entertaining, but they’ll never recoup the cost."
Bosworth also recommends that sellers who need to save money choose a contractor who’ll let them do some of the work. "Have the footings poured by a professional and maybe the frame put together by one, too," he says. "But anybody who knows how to use a screw gun can put in the floorboards and railings."
Adding a natural stain can be a final selling point. "I hear constant complaints from home owners about having to stain the deck every year," says Bosworth. "Colored stains like darker browns and reds wear very unevenly. Natural stains wear more evenly."
Before any work begins on the new deck, make sure that permits are in place. "Home owners should check with their local code enforcement department," Worley says. "People who work [in the department] will often give them free advice to help owners avoid mistakes. They may even provide copies of building codes so home owners can be sure railings are the correct height and vertical slats aren’t too far apart or close together, potentially dangerous for children or pets."
This project is considered essential rather than discretionary in many markets, particularly in neighborhoods where every home has an outdoor living space.
G.M. Filisko is a freelance writer for REALTOR® magazine. You can contact magazine staff at firstname.lastname@example.org.
How to choose a Real Estate Appraiser
People who want to get a professional estimate done on the market value of a piece of property will often choose to hire a real estate appraiser. Because of the importance of getting an accurate and detailed appraisal in the selling or purchasing of real estate, it is important to choose a qualified and experienced real estate appraiser. When choosing a real estate appraiser, you should look for one that has a large amount of professional experience and that meets all national licensing requirements and professional standards for the appraisal industry. A professional appraiser will be local and have knowledge about the area covered. Because getting an accurate estimate of your real estate’s market value is an important step in determining your property’s listing price, it is important to choose a reliable and independent real estate appraiser. A professional appraiser has many forms of contact and business information. A phone number, address, and email should be made available to potential customer through the phone book and a website. Before choosing a real estate appraiser, you should make sure that they have the qualifications and experience that is needed to do a good job. Some things to look for when choosing a real estate appraiser are whether or not they are a member of professional organizations. Organizations such as the Office of Real Estate Appraisers (OREA), National Association of Independent Fee Appraisers (NAIFA), Appraisal Institute, local Board of Realtors in the area covered, Chamber of Commerce, or various state and local certification board. Since most professional real estate appraisers will be a member of some professional organization, you should find out exactly how much professional experience they have in real estate appraisals. Real estate appraisers with many years of professional experience will usually have a track record of providing accurate and detailed appraisals.
Here is my check list for hiring a professional appraiser:
1) Must be in the local phone book, the very least consideration in hiring a professional.
2) Must have address in local phone book (if not how can you send any correspondence, are you hiring an appraiser working illegally according to zoning?) This is the responsibility of the appraisers’ client which may not seem to be a big deal but if you consider the fact that vacant rental office space is hurting our community and the reflection of unprofessionalism on clients hiring these appraisers you can see just how a big deal it truly has become.
3) Must have a website. The website will have information about the different types of appraisals offered. It will have information for new buyers and new sellers to help them know what the appraisal means in valuing their property. This website will answer any question that a customer may have about appraisals. The website will explain the process needed once one knows what type of appraisal is needed. Ordering an appraisal through the website shows professionalism by saving time for the customer and provider of service. All contact information will be listed such as address, phone number, and email address.
4) Must be a member of appraisal organization that sets a higher standard of professionalism. These organizations include National Association of Independent Fee Appraisers (NAIFA) and Appraisers Institute. The organizations that the professional appraiser is a member of will be listed on the website and will explain why the organizations are important.
5) Must be a member of local organizations such as the Chamber of Commerce. A professional is involved in local communities and local business networking. A member that is involved in local organization is active in the community. A member has access to community information otherwise not available.
6) Must be a member of the local Board of Realtors. The Board of Realtors provides information about the buying and selling of property in the area covered. An appraiser must be a member to receive this information.
7) Must only take appraisals from localized area. A professional will be an expert on a surrounding area and focus their work in the area they know. An appraiser from out of the area will not understand the market and the information about the market are not made directly available to them. This is the number one complaint about real estate appraisers.
8) Must look, act and talk like a professional. Appraisers must keep up with the appraisal industry. (Any appraiser still hand drawling a sketch is in the prehistoric appraisal era & a risk to the client)
Fannie Mae's Announcement 07-25 addresses five Fannie Mae Selling and/or Servicing Guide topics to update and/or clarify existing requirements, and communicates new requirements, as itemized below:
Click below for an excerpt . . .
Use of Automated Valuation Models (AVMs) to Support the Cancellation of Mortgage Insurance (MI) Coverage
Servicing Guide Part II, Section 102.05 Borrower-Initiated Cancellation Based on Current Property Value.
Use of Automated Valuation Models (AVMs) to Support the Cancellation of Mortgage Insurance (MI) Coverage
Servicing Guide Part II, Section 102.05 Borrower-Initiated Cancellation Based on Current Property Value.
Fannie Mae has received several inquiries related to the use of an Automated Valuation Model (AVM) to establish the current property value to support cancellation of mortgage insurance (MI) coverage. As stated in the Guide, a borrower is allowed to request cancellation of borrower-purchased MI coverage for any conventional mortgage, regardless of closing date, when that loan reaches a specified loan-to-value ratio. But the Guide requires that value be established by a current appraisal based on an interior/exterior property inspection.
For certain mortgage loans, Fannie Mae allows cancellation of MI coverage based on the current appraised value if the mortgage loan and the borrower meet stated conditions. The use of an appraisal provides a real time analysis of market activity, including a physical inspection of the subject property, to arrive at an accurate valuation.
However, an AVM, relies on public record information to determine estimated value without any assessment of the current condition of the property. As such, Fannie Mae will not permit the cancellation of MI coverage based on the estimated value provided by an AVM, since a real estate appraisal completed by a qualified appraiser is the most appropriate standard and most reliable indicator for determining property value.
Posted by Brian Davis on December 27, 2007 in AVM - Automated Valuation, Lender Updates | Permalink
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In 2001, the Appraisal Institute's Director of Sereening Stephanie Coleman, MAI, SRA, drafted a white paper concerning the ethical elements of readdressing, reassigning or reappraising a property. In light of the July 1 effeetive date of the 2006 Uniform Standards of Professional Appraisal Practice, Coleman has revisited that document and provided updates, printed below. Appraisers are often confronted with one of a variety of questions relating to the same general problem. The scenario is as follows: You completed an assignment for a client some time back--maybe a year ago, a month ago, a week ago--and now another party wants your opinion of the value of the same property. The request may be simply to "readdress" the report you prepared for the previous client. Or the request may be to "recertify" the report, or "reassign" it. Other times, the request may be for you to provide an "update" or a "letter update." And other times the requesting party has no knowledge of, and therefore doesn't mention, the previously prepared report. How should you respond to such requests? First, make sure you understand what is being requested. The requesting party might not know what he or she needs, or might use labels or terms such as "recertification" to mean something quite different from what appraisers would take them to mean. Once you are clear on what the requesting party is asking you to do, the following Q & As might help you decide how to respond. Q. To whom can I give the assignment results? [ILLUSTRATION OMITTED] A. Assignment results are your opinions and conclusions developed specific to an assignment. Examples include your final value opinion, your highest and best use conclusion and your indications of value from any of the approaches used. The Confidentiality section of the Ethics Rule of USPAP and the Appraisal Institute's Code of Professional Ethics provide that an appraiser must not disclose confidential information or assignment results to anyone other than the client and persons specifically authorized by the client; state enforcement agencies and such third parties as may be authorized by due process of law; and duly authorized professional peer review committees. Assignment results may be presented in a written report or in an oral (verbal) report. Sometimes, if an appraiser is not careful, assignment results are revealed inadvertently. For example, an appraiser who in casual conversation tells another appraiser, another client or anyone else, "I appraised that property for $1,000,000" is divulging assignment results. Q. To whom can I give a copy of the report prepared for a client? A. This question addresses a physical, written report. Keep in mind that not all portions of the report are confidential. For example, in an appraisal report, factual data such as sales comparables are not confidential. Descriptions of the location (neighborhood description, region description, etc.) are not confidential. However, since an appraisal report contains assignment results, which are covered in the Confidentiality section of the Ethics Rule of USPAP and the Appraisal Institute's Code of Professional Ethics, the authorization process stated above applies. This means that a copy of the report--showing confidential information and assignment results--can't be given to, revealed to, or shared with anyone other than the client and persons specifically authorized by the client; state enforcement agencies and such third parties as may be authorized by due process of law; and duly authorized professional peer review committees. Q. Can I accept a new assignment covering the same property for another client? A. Yes. However, you cannot disclose, without permission, any confidential information contained in the report prepared in the previous assignment for a different client. So you must ask yourself: In completing a new assignment involving the same property for a second client, will I need to disclose information that was considered to be confidential by the first client? If so, you can't take on the assignment without obtaining prior permission of the first client to release that confidential information. In many cases, performing a new assignment for a second client will not require the appraiser to divulge any confidential information. Revisit USPAP's definition of "confidential information" to be sure: Confidential Information: information that is either: * Identified by the client as confidential when providing it to an appraiser and that is not available from any other source; * Classified as confidential or private by applicable law or regulation. A common misconception is that you must be "released" by the first client to accept the assignment with a subsequent client. The only "release" required regards confidential information. The first client does not need to give you permission to proceed with another assignment for a second client unless confidential information is at stake. Another common misconception in performing valuation assignments is that if the value opinion in the second assignment is exactly the same as the value opinion in the first assignment, then communicating the value opinion in the second assignment breaches confidentiality with the first client. This is not true. USPAP's definition of "assignment results" is "an appraiser's opinions and conclusions developed specific to an assignment." By definition, the assignment results are different by virtue of the fact that there are two different assignments--even if the numbers are the same. Note the difference between saying to Client B, "I appraised this same property for Client A for $500,000" and "My value conclusion [in the context of this assignment for you, Client B] is $500,000." The first statement breaches confidentiality by divulging assignment results, the second statement does not. Still another common misconception is that taking a subsequent assignment with another client would be a "conflict of interest." One cannot have a conflict of interest unless one first has an interest. Entering into an appraiser-client relationship to complete an assignment does not mean that the appraiser then has an interest with regard to that client or that property. It can't. Such a notion would be inconsistent with the underlying principle in USPAP that the appraiser's role is to be independent, impartial, objective and unbiased. Should you disclose to the subsequent client that you were previously engaged in another assignment regarding a property? There is no requirement in USPAP or the Appraisal Institute's Code of Professional Ethics to do so. Such a requirement, if it did exist, would suggest that an appraiser would necessarily be biased by virtue of the fact that he or she was involved in a prior assignment. Again, that simply cannot be. Such a notion would be inconsistent with the requirements of USPAP's Ethics Rule, as recited in the appraiser's certification, for the appraiser to be unbiased. The appraiser must use his or her discretion in deciding whether or not to reveal information about a prior assignment to a subsequent client. There are situations in which the very fact that the first client had the property appraised is in itself sensitive information, if not confidential information as defined by USPAP. (Note that it is characteristic of professionals in many other fields to keep the identity of prior clients confidential.) One caveat about taking on assignments with property owners: appraisers who are contacted by property owners about providing valuation services for which the intended use is in conjunction with mortgage lending must advise those property owners that the assignment must be engaged directly by the lending institution. This is a requirement under federal law, and the regulatory agencies have been adamant about it. Further, an appraisal report prepared for a client who is the property owner should clearly state that it is not intended for use by a federally insured depository institution in a federally related transaction. Q. Can I readdress a report, or change the name of the client, but otherwise give the same report to another client? A. No. It is improper to "readdress" a report to another client for three significant reasons. First, simply changing the name of the client and then forwarding the "readdressed" report to the second client does not change the first appraiser-client relationship. An appraiser-client relationship, once established, is cast in stone and cannot be changed. Typically, the reason the second party wants to be named as "client" is that they want the appraiser-client relationship, and all the rights and obligations thereof, to be between them and the appraiser. The only way to accomplish this is for a new appraiser-client relationship to be established. In short, the only way to be named as "client" in the report is to actually be a client. "Client" is defined in USPAP as the party (or parties) who engage an appraiser in a specific assignment. To be named as the client in a report, one must be the party who engages the appraiser. (Tip: An excellent way to firmly establish an appraiser-client relationship is to have a written engagement letter with the client.) Second, simply changing the name of the client and then forwarding the "readdressed" report to the second client could harm the confidential nature of the appraiser's relationship with the first client. While this could be avoided by obtaining the first client's permission to provide the report to the second client, it still does not resolve the third reason why it is improper to "readdress" the report--which is that to do so is misleading. In an appraisal assignment, if the appraiser simply changes the name of the client, the appraiser is not following the requirements under Standard 1 of USPAP to identify the client, intended user(s) and intended use with regard to this second client in the proper sequence. According to the definitions of "intended use" and "intended user," both must be identified by the appraiser "at the time of the assignment," not after the appraisal process is completed and the report is finished. Even if the original appraiser/client relationship is disclosed, this problem cannot be overcome. Q. What should you do if you're asked to "readdress" a report? A. A request to readdress a report should be treated as a request to accept a new assignment involving the same property, as in the prior question. Again, the question as to whether or not you can do so depends on the issue of confidentiality. Once that issue is resolved, the next questions to be answered are: * Who are the intended users? * What is the intended use? * What date of value is needed, according to what value definition?* What assignment conditions (extraordinary assumptions, hypothetical conditions, supplemental standards) apply? * What is the appropriate scope of work for this new assignment? * What level of reporting is needed? In many such cases there may be little additional work in performing a new assignment for another client. Perhaps when all is said and done, you will be providing virtually the same data and analysis, and even the same value conclusion (though you won't discover this until you have completed your analysis). However, you must consider all the assignment parameters for this new assignment, which could well be different from those of the previous assignment. Further, keep in mind that in providing a report to another client, you are extending your liability to that client. As appraisers, we are not in the business of "selling reports"; we are in the business of providing our expertise and opinions. Every time an addition is made to the list of intended users, our liability grows. From a practical standpoint, both the appraiser and the client need to recognize that their business relationship involves this factor. In sum, a new client means there is a new assignment, which necessitates the preparation of a new report. One additional point regarding assignments for lenders: Appraisers should be aware that the appraisal requirements of FIRREA allow a regulated lender to use a report that was prepared for another "financial services institution." This means that Lender B can use a report that was prepared for Lender A, even though Lender A shows as client on the report. Lender B does not have to be named as client, according to the FIRREA requirements. However, usually Lender B will want their name on the report. Why? Because Lender B wants the appraiser-client relationship, and all the rights and obligations thereof, to be between them and the appraiser. What does this mean? It means that as far as the appraiser is concerned, there is a new appraiser-client relationship--i.e., a new assignment. Q. Can I reassign a report to another party? A. "Reassigning" may mean different things to different parties, so again, be sure you know what the requesting party is asking. In the context of this discussion, "reassigning" means signing over one's rights and obligations with regard to the report to another party. For example, when a report is prepared for and given to Client A, that report is no longer yours to "give," or assign, to anyone else. An analogy would be if you sold your car to Party A, you couldn't then sell it to Party B, as it is no longer yours to sell. Client A could assign their interests in their report to Client B, but the appraiser would not be part of this process (and should not be asked to be). Q. Can I recertify a report to another client? A. When the request is to "recertify," clarification with the client is imperative. "Recertify" tends to be an abused term. Often it is erroneously used to mean "reassign," or "readdress," or "update." Often it is not clear what clients mean when they use the term "recertify," and appraisers need to help remedy the confusion. Appraisers certify their reports (i.e., they may include a certification per SR 2-3 in an appraisal report), but this certification has nothing to do with the ownership of, or rights to use, the report. A "recertification of value" is an entirely different concept. As defined in Advisory Opinion 3 of USPAP, a "recertification of value" is an assignment in which the appraiser determines whether or not the conditions of an appraisal have been met. This sort of assignment is not an appraisal at all, because in and of itself, it has nothing to do with developing an opinion of value. Q. Can I sign or issue a "reliance letter" that says another party (not identified in the report as the client or an intended user) can rely on a report I previously prepared? A. No. Such a letter would, in effect, add that party as an intended user after the completion of an assignment, and you cannot do that.Conclusion Requests for valuation services are presented to appraisers in an assortment of ways, and the appraiser's first tasks are to ascertain (1) exactly what the party is requesting and (2) whether what the party is requesting is appropriate given their intended use. The general rule is that when a new client enters the picture and a new appraiser-client relationship is formed, a new assignment is involved. This new assignment will require the appraiser to at least reconsider or reanalyze the process outlined in USPAP's Standard 1, especially with regard to identification of intended use and scope of work. A new report will be provided, appropriately identifying the party who engaged the appraiser this second time around as the client. In a "reappraisal" situation such as this, the work involved in developing the value opinion and preparing the report will, in most cases, be far less than it was the first time around. The new report prepared for this subsequent client may, for all intents and purposes, look strikingly similar. The value conclusion might even be the same. But much has changed. The appraiser has considered all the parameters for a new assignment to meet the needs of the new client, given their intended use including scope of work, selection of report option, type and definition of value, date of value, etc. The appraiser has agreed to extend his or her liability to this new client in allowing that party to rely on his or her value opinion. Once a report is provided to a client, it cannot be tampered with. Changing the name of the client ("readdressing") is misleading because it falsifies the true relationship between the appraiser and the party who engaged the appraiser in that particular assignment. It is improper for clients to request that reports be tampered with in this manner. It is unethical for appraisers to comply with such requests. Note: The Appraisal Standards Board of The Appraisal Foundation has provided additional guidance on these topics. See Advisory Opinion 25, Clarification of the Client in a Federally Related Transaction; Advisory Opinion 26, Readdressing (Transferring) a Report to Another Party; and Advisory Opinion 27, Appraising the Same Property for a New Client. These Advisory Opinions are published with USPAP. Also see FAQ #73 in the 2006 edition of Frequently Asked Questions published by The Appraisal Foundation; this FAQ deals with "reliance letters." For more information on, or to order, the FAQs, visit The Foundation Store at www.appraisalfoundation.org. This update is also posted on the members only side of the Appraisal Institute Web site at www.appraisalinstitute.org/membersonly/restrict/wht_papers_rprts/readdressing.asp Stephanie Coleman, MAI, SRA, is the Appraisal Institute's Director of Screening. As such she is available for a variety of member requests and inquiries regarding ethics and USPAP interpretation. She can be reached at email@example.com or 877-777-6939. by Stephanie Coleman, MAI, SRA, Appraisal Institute Director of Screening
Buyer Appraisal Services
Maybe you feel like you don't need an "appraisal" but you'd still like some help gathering local property and sales data. We can provide low cost sales and listing reports that will guide you through the maze of raw data. Our reports help you to make an informed buying decision. We understand the complexities of buying a home and know what you are going through and will do our best to make it easier for you by giving you a high quality, professional appraisal that you can depend on!
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Mortgage Broker vs. Loan Officer
When you're looking to get a mortgage loan, you may work with a loan officer or you may choose to work with a mortgage broker. People often confuse the two job types even though both will glean the same results: a new home. However, it is important to understand the difference between the two types of jobs so you know what to expect from them during the mortgage application process.
A mortgage broker is an individual or firm that acts as an independent agent for both the borrower and the lender of a mortgage loan.
Mortgage brokers are the middle man between you and the lending institution, which can be a bank, trust company, credit union, mortgage corporation, finance company or even an individual private investor. A mortgage broker will analyze your financial situation to determine which lender is the best fit for your loan needs. He or she will submit your mortgage application to one or more lenders in order to sell it, and works with the chosen lender until the loan closes. He or she receives a commission from the borrower if the loan closes.
A loan officer is a representative of a lending institution, such as a bank, who works to sell and process mortgages and other loans originated by their employer. They often have a wide variety of loans types to draw from, but all originate from that specific lender.
Also known as a loan representative or account executive, loan officers represent the borrower to the lending institution and will guide him or her through the selection, processing and closing of mortgage loan. Loan officers can be paid a commission or salary for their services.