Unpermitted Additions “Zombie” Assignment Condition
Unpermitted Additions
This is a “zombie” assignment condition that seems to never die.
Let’s agree that unpermitted means something was constructed without a required written permit. There are plenty of jurisdictions that don’t issue permits because the permit process doesn’t exist.
The assignment condition goes something like this:
The appraiser is not to include any GLA from any unpermitted additions unless they use comparables that have similar unpermitted additions.
Here’s what Fannie Mae stated in their September 2014 FAQs:
If the subject property features an unpermitted addition, can the square footage of the unpermitted addition be included in the total gross living area reported on the appraisal report?
If the appraiser has identified an addition(s) that does not have the required permit, the appraiser must comment on the quality and appearance of the work and assess the impact, if any, on the market value of the subject.
Fannie’s position is that the appraiser must support the market impact of any unpermitted additions. But there is no flat out instruction to not include the GLA.
That’s fair and reasonable.
Note that Fannie also distinguishes the required permit.
Too many AMCs are making the blanket requirement that appraisers are forbidden from including GLA without permit documentation.
USPAP’s Take
An appraiser must not allow assignment conditions to limit the scope of work to such a degree that the assignment results are not credible in the context of the intended use.
If relevant information is not available because of assignment conditions that limit research opportunities (such as conditions that place limitations on inspection or information gathering), an appraiser must withdraw from the assignment unless the appraiser can:
- modify the assignment conditions to expand the scope of work to include gathering the information; or:
- use an extraordinary assumption about such information, if credible assignment results can still be developed.
Appraisers have three options and three options, only.
- Modify the SOW to allow for more time to go permit digging.
- Use an extraordinary assumption about the existence of a permit.
- Walk away.
There is no fourth option of completing an “as is” assignment by magically making the 500 square foot add-on suddenly disappear.
AMCs are cautioned from insisting upon such assignments and appraisers are cautioned from taking such assignments.
By Brian Weaver, Coordinator Editor of IllinoisAppraiser, Appraisal Management Company Coordinator for the Illinois Department of Financial and Professional Regulation (IDFPR) – Illinois Appraiser Newsletters – Volume 8, Issue 2
- Hybrid Assignments, the Consequences - February 7, 2019
- Bankers Concerned About Appraisals - October 18, 2017
- Third Party Blues - July 19, 2017
Such a request may constitute a violation of administrative review being improperly extended to include influencing the appraisers valuation results. For areas that do have permitting, appraisers are advised to also contact building departments because sometimes seemingly unpermitted additions are in fact permitted, but the builder department never updated the assessor department. You have to call both departments to know for sure. For places like Denver where you have to file a written request and then wait days or weeks, such proper identification becomes even more difficult, and even seeking such verification may cross the line with confidentiality because the appraiser should not just alert the county and act like the permit police. If lenders and amc’s are having a problem with this issue, they need to take the lead role and be willing to assist owners in getting their permits, and then also be willing to give the appraiser a final inspection fee once the borrowers side of the transaction is finally covered and tied up properly. It is not the appraisers responsibility to be the permit police. If the local municipalities have a problem with unpermitted additions, their own panel and staff appraisers and neighborhood workers should be the ones to correct that. The federally chartered GSE is trying to make local appraisers act like county authorities regarding unpermitted additions, but FNMA has apparently no such rules which are applicable to local municipalities themselves. And why should they, because states rights mean just that and each municipality is allowed to function as it chooses. FNMA is a private corporation, when all is said and done, and does not have the authority to effect local government process. FNMA requirements are over reaching for these considerations, in such locations where either permits are not issued, or locations where appraisers cannot readily obtain such information without sending home owners through official process.