Appendix D sections 6-7 - COMPREHENSIVE VALUATION PACKAGE PROTOCOL
Section 6 - Approaches to Value Cost Approach
If the subject property is new construction or the cost approach is recognized in the market as a basis for pricing, the appraiser must complete the cost approach and attach the following conclusions: > Land value
> Cost new
> Estimates of depreciation (curable and incurable)
> An estimate of value Consider the value by the cost approach in the reconciliation of market value.
Sales Comparison Analysis
In selecting comparables, use the bracketing method. Ideally, one of the comparables should be a little larger (200 sq. ft. to 300 sq. ft.); another a little smaller; and the third should be approximately the same size - generally within a hundred square feet of the subject. If this is not possible, the appraiser should explain why. DO NOT SELECT COMPARABLES BY SALES PRICE. All adjustments must be extracted from the market. Do not make an adjustment unless it has a material effect on value. Explain the reason for making any adjustments for site, site/view or design/appeal. Avoid using three builder sales from the same subdivision, if possible. In some areas of the country it is customary for the builder or seller to pay closing costs for the buyer and include them in the sales price of the property. In other areas, this may occur occasionally or not at all. In those rare market areas where closing costs are the responsibility of the seller and are always paid by the seller and included in the sales price, the appraiser must note this under "Special Limiting Conditions of the Appraisal" in the Reconciliation Block. Do not use as market data sales that are not verified and adjusted to reflect the terms and conditions of sale. Always select the most similar comparables. Use older sales only if more recent ones are not available and be sure to explain in the "Comments" section why any comparable over six months old was used. The appraiser must always use sales within one year of the valuation date. The value factors of Site, Site, View, Design/Appeal, Quality of Construction, Age, Condition and Functional Utility are all subjective factors that require subjective adjustments. Be careful that adjustments are reasonable and not excessive. If a property is overvalued, there is a high probability that the reason can be traced to an excessive adjustment somewhere in this section. Make adjustments only if the dissimilarity has a noticeable effect on the value. Small differences do not usually require adjustments. Always explain subjective adjustments.
Transaction Data
The appraiser must verify the following information with one of the following sources: > Buyer
> Seller
> Broker
> Other parties involved and fully knowledgeable about the sale
> Available public records Enter factual data in each line. Before making adjusi3nents, the appraiser must be knowledgeable and must have inspected the sale property. | Field | Protocol | | Address | Enter the address that can be used to locate each property. Enter community, if needed, to identify property. For rural properties, list site by road name, nearest intersection and side road. | | Proximity to Subject | Enter proximity of straight-line distance in miles; for example, "one tenth of a mile west of subject". If comparable distance from the subject is more than a generally accepted distance, be sure to explain why the sale is applicable in the "Comments" section. | | Sales Price | Enter total amount paid by buyer, including extra cost. | | Price/Gross Livable Area | Enter price per square foot for living area above grade. | | Data and/or Verification Source(s) | Enter data and verification source name(s) or others: tax stamps, MLS, etc. This is the data source for the price and property information. Also show type of financing such as Conventional, FHA or VA. |
Adjustments to Sales Price
Adjustments are made to the prices of the sale properties for price-influencing dissimilarities between each sale and the subject property. Not all dissimilarities require adjustment because not all dissimilarities achieve price differentials in the market. All adjustments must be supported by the actions of the market. Value Adjustments | | Field | Protocol | | Value | For each adjustment item, enter the description of the adjustment and Adjustments whether it is an upward or downward adjustment. | | Sales or Financing Concessions | Enter adjustment for sales concessions, if needed. Be sure to explain in "Comments" section and use Addendum if appropriate. Analyze all sales on a cash equivalent basis. | | Date of Sale/Time | State the date of sale and enter the adjustment for changes in market conditions. | | Site | Enter "Good", "Average" or "Fair", when compared to the subject and using the same standard as the subject. An adjustment for site in the same neighborhood is seldom justified. | | Leasehold/Fee Simple | State whether the property was sold as fee simple or as a Leasehold Estate. An adjustment is required if the estate differs from the rights appraised for the subject property, and the difference is recognized by the local market. | | Site | Enter the size of the lot. Make adjustments only for measurable differences. Small differences in lot sizes do not usually call for an adjustment if the size is typical. If necessary, consider the possibility of excess or surplus land. | | View | Make adjustments only if the view is superior or inferior to the subject. A quality rating of (G)ood, (F)air or (P)oor is given here. If the subject has a superior view and adjustments are made, a photograph would be helpful. | | Design and Appeal | Enter the style according to a description used by local custom and show appeal as (G)ood, (F)air or (P)oor. Adjustments are necessary for differences between the sale and the subject property. | | Quality of Construction | Enter "Good", "Average" or "Fair" and the construction type: aluminum siding, wood siding, brick, etc. If a combination, show the predominant material first, such as brick/frame if it is mostly brick. Adjustments may also be warranted for interior construction quality and should be explained and justified. | | Age/Condition | Enter the age of the subject and each comparable sale. Enter the condition of the subject and comparable. The adjustment for condition is typically required . Consider an adjustment in either age or condition. There is the tendency to duplicate the required adjustment when applied in each category. Consider any assumed repairs to the structure and the roof when determining the need for adjustments to the sales. Consider the conditions reported on the VC Form in making any adjustments. | | Above Grade Room Count | Enter room count, consistent with the description of improvements on the front of the URAR - Commonly, three adjustments may be entered: The first may be an adjustment for "expendable space", such as a bath. A deficiency in the number of baths should be adjusted first. The second is a separate adjustment for a difference in square feet. The third is an adjustment for room count. These can be individual or separate adjustments that have been combined. All should be extracted from the market. But room count and bath adjustments should be on one line and square foot adjustment for size on another line. Explain any property that has an adjustment in both square feet and room count. Break down combination adjustments in the "Comments" section. | | Gross Living Area | Enter the total square footage of the above grade living areas. | | Basement & Finished Rooms Below Grade | Enter the type of improvements in the basement: bedroom, recreation room, laundry, etc. Include other fully or partially below grade improvements found in the subject property or comparables. Make appropriate adjustments to reflect differences between the comparables and the subject property. Explain any special features. Show number of square feet of finished area. | | Functional Utility | Enter "Equal", "Superior" or "Inferior" as a total of the items rated in the Improvement Analysis compared to the subject. Use the "Comments" section frequently and explain special features. The category of functional utility typically is the place to deduct for functional obsolescence observed in the subject, recorded on Page 1 and not found in the comparables. Extract dollar adjustments from the market. For example, a poor floor design that includes two bedrooms so that the entrance to one is gained by passing through the other typically requires a negative adjustment for functional obsolescence. In such a case, the second bedroom would not be counted as a bedroom. | | Heating/Cooling | Enter an adjustment for differences in building systems or condition. | | Energy Efficient Items | Enter an adjustment for any energy efficient items: storm windows and doors, solar installations, replacement windows, etc. | | Garage/Carport | Enter an adjustment for car storage. Calculate adjustments in accordance with market acceptance of carport value versus garage and size (one car, two cars, etc.). | | Porch, Patio, Deck, Fireplace(s), etc. | Enter an adjustment for these features. Base any adjustments on local market expectations. If a lump sum adjustment is offered for multiple amenities, break it down in the "Comment" section. | | Fence, Pool, etc. | Enter appropriate adjustments. For example, a pool located in an area that expects pools might bring a dollar premium in comparison to a comparable without a pool. | | Net Adjusted (Total) | Check either [+] or [-] box to indicate if the total net adjustments will increase or decrease the value and note by how much. If any adjustment is excessive, review the comparables to determine if the best ones were selected. If the total adjustments appear excessive in relation to the sale price; the appraiser should reexamine the comparability of that sale. Explain any adjustment that appears to be excessive. | | Adjusted Sale Price of Comparable | Total all of the adjustments and add them to or subtract them from the sales price of each comparable. Generally, adjustments should not exceed 10% for line items, 15% for net adjustments and 25% for gross adjustments. | | Comments on Sales Comparison | Please comment on the Sales Comparison section, including the subject property's compatibility to the neighborhood, specific characteristics of the sales that affect the adjustment process, etc. The analysis must be reported and the effect concluded. | | Date, Price and Data for Prior Sales Within One Year of Appraisal | This is in accordance with USPAP standards, which requires the appraiser to consider and analyze any prior sales of the property being appraised and the comparables that occurred within one year of the date of appraisal. | | Further Analysis | Provide an analysis of any current agreement of sale, option or listing of the subject property and analysis of any prior sales of subject and comparables within one year of the date of appraisal. | | Indicated Value by Sales Comparison Approach | Upon the basis of the adjusted data, enter the indicated value of the subject. DO NOT arbitrarily select the adjusted sales price that is midway between the lowest and highest adjusted sales price. DO NOT average the comparable sale prices to arrive at an Indicated Value. The final estimate of market value must be supported by the actions of the market. |
Income Approach
In a single-family residential property, the income approach is generally not recognized as a basis for buying by the market. The approach typically provides minimal applicability in the estimate of market value. If a three- or four-unit building is being appraised, the appraiser has attached the valuation by the income approach to the addenda of this report. When used, show the gross rent from each of the comparables at the bottom of the form under "Final Reconciliation."
For example: > Comp. #1 Gross Rent = $1,000 (GRM 110); Comp. #2 Gross Rent = $1,200 (GRM 108),... To determine the appropriate gross rent multiplier to use, follow the same procedure as in the market approach. Select a GRM based upon comparable rentals. Be sure to explain the information. The appraiser must also analyze and report on current market conditions and trends that will affect projected income or the absorption period to the extent these conditions affect the value of the subject property. This information should be consistent with the neighborhood information on the front of the URAR.
| Field | Protocol | | Indicated Value by Income Approach | Select and enter the indicated value by the income approach. |
Section 7 - Reconciliation The appraiser must consider all appropriate approaches and all information relevant to the subject property and the market conditions in the estimate of market value. | Field | Protocol | | Market Value "As Is" or "Subject to Completion per Plans" | Check the box marked "as is" or "subject to completion per plans and specifications". Use the "as is" value only if there are no repairs required or if the property is being rejected. If the property is being rejected, the appraiser must provide an "as is" value. The value "subject to completion per plans and specifications" must be consistent with the expected date of completion of the construction. State any assumptions that affect the premise of completion and the resulting value. | | Market Value, "Subject to Repairs" | The value "subject to repairs, alterations, inspections or conditions listed" must reflect consistency between the development of the approaches to value and the final estimate of value. The appraisal is completed "as repaired". The appraiser must indicate the extent of repairs and also note this in the Valuation Condition Form of the appraisal. Only required repairs will be completed, and the market value must reflect the existing physical characteristics. Report any special circumstances or unique agreements and consider them in the reported value estimate. | | Conditions of Appraisal | In addition to any comments that the appraiser wants to make, the appraiser should enter taxes and insurance expenses and condominium or PUD common expenses as appropriate. The appraiser must also enter any Limiting Conditions. | | Final Reconciliation | This entry should contain the appraiser's reasoning for arriving at the final value. | | Date of Value | Enter the date when the property was inspected. | | Appraiser Signature | The appraiser who performed the appraisal must sign the form. | | Appraiser Name | The appraiser who performed the appraisal must print his or her name. | | Date Report Signed | Enter the date when the appraiser signed the report. | | State Certification | Enter the appropriate and valid State Certification number. | | State License | Enter the appropriate and valid State License number and state. | | Supervisory Appraiser | The FHA Register appraiser must use this portion of the form for all required information and is always required to inspect the property. |
Attachments The appraiser must do the following: > State in the space provided in the Final Reconciliation section: "See attached appraiser's certification and Statement of Limiting Conditions."
> Attach a copy of these certifications and limiting conditions to all copies of the appraisal report, or the report is not valid for HUD use.
> Clearly and distinctly discuss any additional or different limiting conditions to those provided in this Handbook.
> Attach any valuation detail and support for estimates of value by the Cost and Income approaches.
> Provide attachments for any observations of the physical aspects of the property that lead to a recommendation for a physical inspection.
Attach the following to the URAR: > The appraiser's certification
> The statement of limiting conditions that HUD has adopted
> The certification number or license number and expiration date
Then forward the complete appraisal package to the lender. | Field | Protocol | | Definition of Market Value | "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus." |
Statement of Limiting Conditions and Appraiser's Certification - Contingent and Limiting Conditions
The appraiser's certification that appears in the appraisal report is subject to the following conditions: If the appraisal is based on a condition different or contrary to the conditions listed below, full disclosure of the differing limiting condition must be inserted and made known in the value estimate. Any value-influencing limiting conditions must be cited with the reporting of the estimate of market value. | Field | Protocol | | Matters of a Legal Nature | The appraiser will not be responsible for matters of a legal nature that affect either the property being appraised or the title to it. The appraiser assumes good and marketable title and responsible ownership. If applicable, the appraiser must specifically change this limiting condition and address the limitations in the reconciliation of market value. | | Sketch of Improvements | A sketch showing the approximate dimensions of the improvements has been provided in the report. If a sketch is not provided, the appraiser must report the lack of information to develop the sketch. Additional visual aides, such as photographs and brochures, are recommended as attachments. | | Special Flood Hazard Area | The appraiser has examined available flood maps and has noted whether the property is located in a Special Flood Hazard Area. A copy of the flood map is attached to the appraisal report for any properties in a floodplain. | | Court Testimony | The appraiser is not required to give testimony or appear in court because he/she performed the appraisal unless specific arrangements have been made beforehand. | | Adverse Conditions | The appraiser has noted in the report any adverse conditions he/she has found. In addition, the appraiser has no knowledge of hidden conditions that would decrease the value of the property. Any observation or knowledge of adverse conditions must be reported and made apparent to the reader of the appraisal report. | | Highest and Best Use Value | The appraiser has estimated the value of the land in the cost approach at its highest and best use and the improvements at their contributory value. These separate valuations of the land and improvements must not be used in conjunction with any other appraisal and are invalid if they are so used. | | True and Correct Sources | The information that the appraiser used in the report was all from sources that he/she considers true and correct. | | Disclosure of Contents | The appraiser will disclose the contents within the appraisal only as provided for in the USPAP. | | Subject to Completion of Repairs | The appraiser has based his/her appraisal report and valuation conclusion for an appraisal that is subject to satisfactory completion, repairs, or alterations on the assumption that completion of the improvements will be performed in a workmanlike manner. | | Distribution of the Appraisal Report | The appraiser must provide his/her prior written consent before the lender/client may distribute the appraisal report to anyone other than those that are outlined in the URAR. |
Appraiser's Certification The appraiser must sign and certify that the following statements are true in the development and reporting of market value in this appraisal report. The appraiser must attach additional certification, if applicable, to meet specific reporting requirements for professional organizations and state certification and licensing. | Field | Protocol | | Sales Comparison Analysis | The statement affirms the process in which the appraiser performed the Sales Comparison Analysis. After comparing properties to the subject, the appraiser certifies that he/she made financial adjustments based on the market to determine an appropriate price for the subject property. | | Factors that Impact Value | The appraiser has considered all factors that impact value and has not knowingly withheld any significant information from the report. The appraiser has reported true and correct information for all factors. | | Personal, Professional Analysis | AR stated information in the report is the personal, unbiased and professional analysis, opinions and conclusions of the appraiser. | | Interest in the Property/ Discrimination Clause | The appraiser has no interest in the property and has not performed the appraisal in any way on the basis of the race, color, religion, sex, handicap, familial status or national origin of either the prospective owners or occupants of the subject property or those properties in the vicinity of the subject. | | Present or Future Interest in the Property | The appraiser has no present or contemplated future interest in the subject property, and neither employment nor compensation is contingent on the appraised value of the property. | | Predetermined Value | The appraiser was not required to report a predetermined value and was not encouraged to report a value that favors the cause of the client or any related party. | | USPAP Conformity | The appraisal was conducted in conformity with the Uniform Standards of Professional Appraisal Practice. An estimate of reasonable time for exposure in the open market is a condition in the definition of market value and is consistent with the reported estimate of Exposure Period on the URAR. | | Interior and Exterior Inspection | The appraiser has inspected both the interior and exterior of the subject property and the exterior of all comparable sales analyzed and has noted any apparent adverse conditions in the report. | | Professional Assistance | If the appraiser had significant professional assistance in the performance of the appraisal or the preparation of the report, he/she must name the individuals providing significant professional assistance and disclose the tasks performed by these people. | | Professional Assistance Appraiser Signature | The appraiser must note any individual providing significant professional assistance in the reconciliation. In regards to certification and agreement with the Appraiser's Certification, the appraiser who performed the appraisal must sign in this field. | | Appraiser Name | The appraiser must print his/her name. | | Date Signed | The date that the appraiser certifies and agrees to the Appraiser's Certification should be entered in this field. | | State Certification Number | The appraiser must enter the appropriate and valid State Certification number. | | State License Number | The appraiser must enter the appropriate and valid State License number (if applicable). | | Expiration Date of Certification or License | Enter the date State Certification or License Number expires. |
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