Summary:
The loan agent's crucial responsibility is identifying a well-qualified, licensed, and insured appraiser. This appraiser, familiar with the geographic location and property type, plays a pivotal and irreplaceable role in the appraisal process, following the Uniform Standards of Professional Appraisal Practice (USPAP) requirements. USPAP, the body of knowledge and performance standards for the appraisal process, is authorized by the US Congress and is revised and updated yearly. The appraiser's role is essential, indispensable, and greatly valued.
Article:
Customs and practice suggest that the lender will dictate who an approved appraiser is and that the appraiser is qualified by license or specific certification to accept the assignment for the intended security property. This mandate by the Bureau of Real Estate Appraisers is required under Business and Professions Code Section 10232.6. As a key stakeholder in the appraisal process, the lender is not just a financial entity but also a quality control checkpoint. Their role is crucial, as they are responsible for ensuring that the appraiser is qualified, that the appraisal report meets the necessary standards, and that the appraisal process is conducted fairly and unbiasedly.
The first document is an appraisal order form, which will document the type of appraisal, by whom it will be conducted, when the assessment will be paid for the job, and who may rely on the appraisal. If you, as a loan broker, act as an agent for private investors or lenders who intend to fund the loan, or if you plan to sell or assign the loan after investing the loan with our capital. In that case, the appraiser must be informed that private investors/lenders will rely on the appraisal report, which is included in the 'Who Can Rely' section of the appraisal.
In addition to appraising the property, the appraiser may need to conduct a rent survey, a lease-up or absorption study, a personal property appraisal, or a business valuation for an ongoing concern, such as an operating business.
Assumptions and Limiting Conditions are sometimes considered the legalese or boilerplate of appraisal reports.
- The assumptions relate to the scope of work identified in the appraisal process. In writing, the appraiser will outline assumptions, such as the correct legal description, that the zoning is suitable for the property's use, and that the information provided is true and accurate.
- Limiting conditions limit the use of the appraisal, primarily by specifying the use and intended users of the appraisal report. That is, who may rely on the information's contents? However, each assumption or condition must be reasonable and supportable in the appraisal content and not conflict with the Extraordinary Assumptions or Hypothetical Conditions.
Understanding extraordinary Assumptions and Hypothetical Conditions empowers you to identify and address potential issues, giving you a strong sense of control and confidence in the process. This means the appraiser has taken some action or used a method that departs (a departure) from USPAP standards. The appraiser may have made assumptions that could render the appraisal little or no value. We may encounter this issue when the property is zoned incorrectly for the neighborhood or its intended use or when comparable properties are challenging to locate. This knowledge should empower you to identify and address such issues, giving you a sense of control and confidence in the process.
Examples of extraordinary assumptions:
- Assuming that all entitlements are complete for a construction project,
- Considering that there is adequate absorption for lease-up,
- The building conforms to zoning and usage ordinances,
- Assuming that the property construction will be completed in a timely and on-budget manner,
- Assuming there are no environmental concerns.
As a final comment, the lender's thorough review of the entire appraisal is critical and crucial. This review can uncover issues such as the number of area vacancies, the applicable capitalization rates, and a discussion regarding zoning, conformity, and verifying city permits. This thorough review, which ensures all aspects are considered, should provide reassurance and confidence in the process, making the audience feel secure in their role.
Common Errors and Issues:
Opinion 17 of USPAP: Current or Prospective Value?
https://appraisersblogs.com/appraisal/uspap-2016-17-summary-of-changes/
There is too much wiggle room for the appraiser taking instructions from a prospective property owner who does not have approvals for a particular number of units on a properly zoned property.
It is better to wait until there is some surity about what the property owner can develop given the tit for tat negotation between local municipal ministrial approvals and the new state mandated overlay to comply with state regulations. Local municipalities will fight fiercely to retain their power and authority over the development approval process.
Only through 'builder remedy litigation', a legal process in which builders can challenge local zoning laws, will they be put in their rightful place, with only ministerial authority. This process is significant as it can significantly impact the appraisal process and the property's value. Once there is a history of losing in litigation and they must pay attorneys' fees and damages, they will finally roll over. This concept is essential for loan agents and brokers to understand as it can significantly impact the appraisal process and the property's value. Builder remedy litigation is a legal process that can dramatically affect the appraisal process and the property's value, and loan agents and brokers need to understand its implications.