Incorrect Comments in Multi-Family Report
I have in my possession an appraisal for a DUPLEX (2 family residence) on a FNMA 1025/FrMac 72 form, commonly called the ‘1025 Form’ which was done by a Certified Residential Appraiser licensed for 8 yrs, 6 months.
Items “observed” in the report:
- UAD rating numbers are used for Quality and Condition. 1025 forms are not UAD coded, so why are these used? Please don’t tell me “the client said so” because the client is incorrect, and may not be aware. Use the standard wording for those items, and provide a definition description of the standard wording you use.
- The Highest and Best Use statement is questionable. H&BU is paramount (most important) in EVERY appraisal, and is not just a checkbox on the form. Appraisers must give reasoning why they decide and conclude a particular H&BU. In this report, the appraiser’s first explanation sentence is “The appraisal problem did not warrant an intensive highest and best use study.” There are FOUR components to H&BU that need to be examined, with a conclusion drawn from that ‘intensive study’ of those components. There is NO explanation as to why this Duplex is indeed the H&BU for that site.
- In the Addendum, verbiage states info relating to a URAR, the standard SFR 1004. The 1025 form is NOT a URAR as evidenced by the name on the form. The appraiser merely used a regular SFR 1004 form Addendum, and stuck that into the 1025 report, without modifying the info. Appraisers have got to be more careful about proofreading reports and using correct information.
- The statement about Verification of information is incorrect. The appraiser re-uses the MLS listing number in the Verification Source(s) field for each comparable, yet in the Addendum tells the reader that “sales data has been confirmed from two sources”. An MLS listing number is NOT a Verification Source, it is a Data Source. A Verification Source is a PERSON, which should be identified by ‘type’ in the report.
- Again, in the Addendum, the Sales Comparison Analysis Summary, Reconciliation and Conditions of Appraisal statements, reference is made to “URAR – single family residences”, because the appraiser has not modified the Addendum to reflect this multi-family appraisal. Re-read #3 above.
- The report has a statement the report complies with the Professional Ethics and Standards of a professional appraiser organization. I checked; the signing appraiser is not a member of that organization, and neither is another appraiser who works in that same office with the signing appraiser. This statement SHOULD NOT be in the appraisal report. It is deceptive, and unethical, to cause the reader to believe that an appraiser is an appraisal organization member when they are not.
The above sloppiness in this legal document reveals the appraiser’s potential incompetence. However, the rest of the report appears properly done. But sloppiness, and the deception noted in #6, can get appraisers in real trouble if the report is turned over to the state for investigation.
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Secondary source does not have to be a human. The 1004 comment is a sloppy error, but has no effect on value. H&BU does not have to be a novel in every instance. This article is pretty heavy handed, and maybe the better thing is to remind everyone 1025s are not UAD. How about the review department which didn’t kick it back for using UAD?
So, using UAD ratings and providing UAD definitions in a 1025 report is wrong? It seems reasonable to me, as it has become an industry standard. I don’t believe it is a violation. If it is, please enlighten me.
I think as long as the appraiser provided the appropriate UAD definition pages there should be no issue for using UAD ratings.
When UAD first came out there was a lot of discussion about including the UAD definitions in the report. One of the attorneys who is involved in the appraisal industry ( I can’t remember who) said that it should not be included because it make it look like the report is written for non-professionals to understand it whereas anybody in the industry would know what those terms meant. It thus opens you up to the question of who is the intended user.
Filing out the 1025 was entertainment, I really enjoyed asking the tenant’s rent in front of the agent or owner. Facial expressions varied greatly between them.
Frank Cox that’s what I do. I feel like that approach is reasonable considering UAD is so commonplace.
I use the ratings and provide the definitions in multifamily… I do state that the multifamily is not UAD standardized, but the definitions were used for consistancy in report writing. If I am in “violation” I’d love to know it… I doubt this even got back to the appraiser so they could learn from any mistake they may have made…
FNMA said it is ok to use as long as you include the definition addenda.
I’ve never done one that way. I despise UAD. Manually converting it in a non UAD form would be such a waste if time.
I have used the UAD in describing on the 1025 form and included the definitions page. Dont you think the definitions page is better at elaborating on the abbreviations than just the old “average”? UAD is commonplace and easy for the reader. I have no problem with UAD terminology on the 1025.
I have as well. It’s more style than substance. Must have been a slow news day.
Why limit yourself with uad ratings on a non uad form? Do you do 1004c uad also? Uad is not industry standard in any way in my market. I wouldnt say its wrong at all, just a poor way to communicate.
I don’t complete 1004c appraisals. I disagree with your assessment Chris Holloway. I feel like the UAD definitions are very detailed in comparison to “average”. But, we are all entitled to our own opinions and it’s okay we see it differently.
Brady respectfully, it is only an ‘industry standard’ for GSE transactional lending. (about 40% of all appraisal volume) The majority of 60% of us do NOT use it.
1. UAD is a bad reporting system. You have no choice for clients that require it but for any other ‘real’ or normal appraisals the English language is preferred…without jargon.
2. For those appraisers that insist on misusing UAD then INCLUDE THE TWO PAGE DEFINITIONS SHEET without failure because the abbreviations are otherwise meaningless to ordinary people, as well as the rest of us that refuse to adopt this defective form filling method.
3. The only violation would or could be if the report is misleading or not suitable for the intended use due to use of UAD…a distinct possibility. Especially for those that dont explain it and include the 2 page definitions addendum. Please keep in mind UAD ratings are literal rather than relative. It is only GSEs that are stupid enough to believe property comparisons are exact or literal ‘absolute’ buyer representations in the marketplace.
UAD-speak has become common place among appraisers that only do GSE work. When they are unable, unwilling or too lazy to use the appropriate form OR format when doing appraisals that are not UAD required assignments, at a minimum they show their peers that they are unaware of the subtle distinctions (problems) with the entire UAD formatted reporting system.
Guilty as charged. Ha! Because mortgage lending is super easy, having almost all definitions of the appraisal problem and applicable appraisal solutions predefined through funding guidelines and gse guidance language. It’s a lot like diy garage mechanics, refer to the book then apply the necessary assemble or disassemble action.
It’s a world view sort of thing based on where you spend most of your time. I can barely imagine not using uad language because that’s what I’m immersed in 100% of the time.
Hence the constant disconnect between mortgage lending, litigation, and insurers approaches. It’s all by design to shield lenders from liability. As legitimate as the points are I refrain from arguing them because if one is to apply truly unbiased review of uad based appraisal work, they are expected to be as fully versed in uad methodology as the gse appraiser.
And don’t forget that C5 is right out and do not use it for your subject unless it’s an reo. Ha! Chaos by design.
Has anyone really had an underwriter kick back a 1025 for errors? They don’t know how to read it in the first place. The only time you get anything back from them on a 1025 is a reconsideration of value.
It comes down to competency. How competent is the appraiser if they can’t figure out the intended use, the intended user, the scope of work, and the correct method to present their credible assignment results?
If the intended user includes dealing with gse’s… Be careful with a selectively applied competency argument, that can flip like a switch and run the other direction.
I do apply the uad to the 1025 with mortgage lending work. Primarily because it’s simply too much extra effort to always create a new multi fam template during routine master template creation. It’s a much rarer assignment type in my local so it’s simply an unnecessary effort to try and keep up with a third master template through the years. I keep only two templates, one for reo, the other for mortgage lending.
It’s just simply a lot easier to only create a master 1004, clone that, then use the form swap feature. All that pre written uad related writing and inclusion material auto populates. If you fill your ratings in the 1004 prior to form swapping the uad material auto populates technically correct into the 1025. And it’s then actually nice to be able to selectively bounce into uad and out of uad per grid line item as the appraiser feels is best with their own discretion. That’s how uad should have been in the first place, a voluntary best practices approach.
Hardstops are for the birds.
In case you’re not a regular uad slave and have never actually ran across this scenario, checking the no box on H&BU is a hardstop. Riddle me this riddle me that, how should an underwriter deal with an old hat.
Too many an appraiser Dave, the thought is “just get it past the lender/client”, versus will this hold up in front of a review board, or what is the best policy & practice. Hell, if a panel of my peers are mostly doing the same thing, then doing the right thing often makes you the greasy wheel that is getting all the unwanted attention from your client (negative).
For me, I welcome and enjoy the squeaks, and as such my reports are packed with grease (support) for my clients to use.
Seek the truth & go grease lightening.
If the “intended user” is a “lender/client” they are, by definition, sophisticated users and should already be familiar with UAD definitions, and, since USPAP says the credibility of the report is judged through the eyes of the intended user, I don’t see where anyone should have any issue with providing UAD categories to LENDER/CLIENTS.
Just because the GSEs did not take the time to “code” the 1025 for UAD, does not mean, no one on the lending side doesn’t know the UAD condition ratings when used outside of a 1004.
Marion we no longer can count on what USPAP says is the metric of acceptability. California has completely abandoned USPAP compliant SR3/SR4 appraisal reviews. As a matter of fact they have codified changes so that no BREA Real Estate Appraiser/Investigator is permitted to do (1) any appraisal (2) any appraisal review appraisal.
You also left out part of the definition of acceptability. It is not only necessary to meet the expectations of the client BUT other peer appraisers that regularly perform similar assignments. On that basis, the UAD format on 1025 IS wrong.
Is it likely anyone would or should be hit with a USPAP violation because of it? No. Realistically it’s merely more of an annoyance…like appraisers that fail to round to market signficant numbers. Without intending to be insensitive to fellow appraisers that think its a one size fits all format it is simply indicative of appraisers that either don’t know any better …or that choose to disregard predominant convention.
Mike, that may be, however, the Original Article here, pertained to a 1025, which is a GSE form and the UAD is the GSE language.
So, if, any appraiser is using a 1025 GSE form, for an assignment that is not lending, then the appraiser is wrong, from the get-go.
Other than that, it is not hard to point to the bottom of the form show that the 1025 is the GSE form, the UAD is the GSE language, and the “client” ordered the form, because of lending, and lenders are familiar with UAD language, hence, should have the “language” of the lenders and GSEs for lending purposes. Borrowers are not intended users of GSE forms, although, they may receive a copy, Their copy does not have to be in a “language” the borrower is comfortable with, least appraisers wind up writing reports in English and French and Chinese, and all the languages that borrowers are comfortable with. Oh, and you’ll have to interview the borrower as to which language they need so that they comfortably understand a report that they are neither the client for, nor, the intended user of.
There is nothing with USPAP or any law or regulation relating to the “language” an appraisers uses in a report, other than there at least used to be, a requirement that the value be stated in dollars – as opposed to euros or bitcoins or any other currency. But maybe that’s gone away too?
Nope. What about something like dealing with an investor buyer whom will turn right around and be looking at an ‘official gse report’ after their independent report during purchasing phase? It can be argued that it is in THAT intended users best interest to become familiar with uad language.
On to the other point. Do regulatory boards for appraisal activity even have requirements that a certain portion of their appraisers should have recent and regular GSE experience?
Nobody should define any competency or ethical compliance line regarding form choice and language use. Such a choice is at the developing appraisers sole discretion. If reviewers can’t understand the language, and have no real world familiarity with the context of the language in actual working practice, they should not be reviewing that report in the first place. In this regard the regulatory boards throughout this country now turn to the amc rep to fill them in on what they’re missing. It’s no mystery why there are a host of brand new problems when it comes to fairly applied appraisal review.
Boards should be populated with a mortgage lending appraiser whom does not take amc work, a litigation appraiser, an insurance appraiser, an amc appraiser (and not any amc company employees), a dual realtor/appraiser, and throw in a wild card like some dual licensed appraiser lawyer or appraiser developer, etc, etc.
There should be a special higher level of understanding regulatory board member testing program applied through the asb for all board members nationally, possibly including recommended penalty matrix understanding, gse & va principals, other legal concepts including relationships to insurability and litigation. And the ethics book should only be revisited once a decade if that. Dare to dream. Sometimes when I listen to board meetings and such it sounds as if they’re just participating as a hobby, dialing it in on a full time basis. There should be full public disclosure of their history, their pay, their time commitments. All penalties even if minor should be a matter of public record in a national database. Oh boy, I’d get a lot of traction in that scenario, the old what’s your fee and turn time argument would be a thing of the past. Toss in a credit check because nobody should be a preferred appraiser above others if they can’t even manage their own credit. Call me an idealist.
What we got here is a case of; if the rule can not be selectively enforced for the benefit of the lender and the state, the rule needs to be changed. Chaos by design. don’t understand why appraisers are so keen on the terms, ‘if you were in front of your state board’. The board is essentially an arm of the government. As if ethical people are not already standing tall in the face of government tyranny on a daily basis. Welcome to the right here and right now. I think some people confuse the merits of standing with the full armor of ethic with needing to simply avoid appearing in front of the board and if so, finding clever ways to avoid prosecution.
It’s not about clever language or this or that technical compliance. Ethics is about honesty. In appraisal language, you can accomplish any measured approach in a technically compliant way by simply forming the scope of work and disclosure language properly. I don’t go so far as to say nobody should rely on this work for any reason, I do not say that for a very specific reason. That is crossing the proverbial ethical line of representing myself as a reliable honest person. There is certainly a line and it’s important not to cross it. That line is not drawn with the mere choice of using uad language or not. Cheers.
Pure sophistry! Read ANY GSE directions for completion of the FNMA Form 1025 and UAD formatting and language is NOT supposed to be used. Period.
Could you provide sources/links for this statement. I’ve never seen anything that said it shouldn’t be used, only that it doesn’t need to be used. This is an important item if they’ve actually said that it SHOULD NOT be used. In their UAD Overview (https://www.fanniemae.com/content/fact_sheet/uad-overview.pdf) they say it doesn’t need to be used, not that it shouldn’t:
Non-UAD Forms (Forms not required to include the UAD standardization and/or mapping)
Manufactured Home Appraisal Report (Fannie Mae Form 1004C / Freddie Mac Form 70B)
Appraisal Update and/or Completion Report (Fannie Mae Form 1004D / Freddie Mac Form 442)
Small Residential Income Property Appraisal Report (Fannie Mae Form 1025/Freddie Mac Form 72)
Individual Cooperative Interest Appraisal Report (Fannie Mae Form 2090)
Exterior-Only Inspection Individual Cooperative Interest Appraisal Report (Fannie Mae Form 2095) A MISMO XML data stream with an embedded first-generation PDF file must be submitted to UCDP.
Michael, I dont think there is a written ‘rule’ saying the form cannot be used. My own opinion is strong that it should not be used. There are many reasons.
1. Real users of appraisal reports & market participants like buyers and sellers do NOT rate the property as C1 or Q1. Never. We are forced by FNMA to comply with their isolated UCDP UAD formats so that they can eventually automate the process and eliminate appraisers in accordance with already publicly stated MISMO goals. FNMA also “Decreed” C & Q ratings are absolute rather than relative. They also assume the ratings once made should not change. THAT runs contrary to generally accepted appraisal principles and practices as practiced for decades. It redefines fundamental appraisal concepts by fiat rather than by informed consent and agreement of the profession.
2. The use of UAD formats in 1025 would most likely produce misleading reports since the parameters being considered are format related rather than real market reflections.
Those I’ve seen were terrible reports for other reasons as well. The most common one is failing to include the UAD definitions pages and explanations when the incorrect UAD format is used. Most American-humans understand the RELATIVE comparisons such as fair-average-good-excellent and all in between ratings. Most also understand Similar-Inferior- Superior relationships. It is only the computer and database aggregators that cannot. Most humans have no idea what a C2 to C5 comparison is. Its like saying on a scale of 1-10 how do you feel about something. WITHOUT telling you if 1 is good or 10 is good.
3. UAD mindset and reviewer mindsets focus on frequently irrelevant comparison points. UAD ‘urges’ (by practice and habit) line item adjustments anytime there is a difference between the subject and a comparable. It’s not required, but it is encouraged or one then has to support and explain “zero” adjustments.
Income property more often than not has variable “units of comparison.” 2-3 & 4 unit properties when compared with each other (as is often necessary) are affected by the Principle of Diminishing Returns (economy of scale and its inverse). When forced to compare a 3 unit with a 2 unit and a 4 unit, line item adjustments for SF; Units, Rooms, Bedrooms & Baths, will more often than not result in incorrect results (based on prices of sold comps per those same units of comparison).
THIS is where the UAD mindset SFR appraiser often runs astray. While GBA may (or may not) remain a valid adjustment criteria, the other line items rarely will. (A $500k duplex comp suggests a value per unit of $250K. An $800k 4-plex comp suggests $200k per unit. A third MUCH smaller or much larger triplex comp might have a per unit $180K or $280k indication. Selecting any one of these numbers for a line item adjustment may well be egregiously wrong. They have to be reconciled and then THAT adjustment used- but ONLY IF the market recognizes that specific unit of comparison. Its just as likely the value in direct sales could be price per sf of GBA OR even NRA. Line item baths and room counts may or may not be relevant in the market. Where ALL units of comparison are considered, they almost always need to be separately reconciled in a separate grid or spreadsheet (called by many different names). The conclusions may not follow the gridded comp indications.
Cert res appraisers should be THE experts on 2-4 unit appraisal in America, yet it is surprising that so many are uncomfortable doing them or dont know how. If general certified have special competence, its usually only as a result of working in full service mixed property type shops for many years. C&I appraisers have the skill and knowledge, but often limited experience.
“We” tend to see income property in terms of net income. As a group we are far less likely to see the emotional appeal of a duplex, than a local residential appraiser will see . Trying to overcome these hurdles in an artificial, non sensical format just makes it harder for all concerned to do the analysis properly. (Yes, the UAD format IS nonsense despite the original lies about it being less confusing).
Oh Mike. I hold your opinions in such high regard with good faith. All right, I’ll try and change my evil ways. Peer standard and all. Luckily for me, multi’s are really rare, proximity reasons. I only run across those every now and then. And with a nearly 100% ml workload over the past few years, I just don’t dive into private work anymore. The access to mortgage lending work is so simplified in comparison, get the client, workflow gets moving, and it’s automated after that point. Theoretically, it’s all about the sow more than the form, and that is a subjective opinion of mine personally. In the final analysis, the peer standard is still a vital consideration.
You can do whatever you want. It’s obvious many appraisers who do mortgage work use UAD terms in the 1025 GSE form. If Fannie has said we shouldn’t I’d like to know. If it’s just somebody’s opinion then say it that it is. I use those terms in my mortgage related work. I wouldn’t in non-lender work, nor would I use that form.
GSE’s about to change Residential Loan Application to reduce Mortgage Application Fraud and better yet ENCODE or “monetize” Borrower data. This will all facilitate Machine Learning and Artificial Intelligence and remove human beings from the mortgage loan process.
Mortgage Brokers punch drunk in 2019 record profits which were ENABLED by appraisal waivers have absolutely no idea what is about to happen to them. Every loan package they submit to the GSEs effectively contributes to the mortgage brokers own demise.
Whomever eventually acquires the GSEs is going to have an unbelievable treasure trove of property/borrower data to monetize.
This has been the plan all along.
SB, thank you for bringing this to our attention. Suggested reading above.
First end of life for windows 7 and now gse form redesigns? In the same year? Tears.
One can imagine the brand new chaos, but you don’t have to imagine for long, it’s already a happening and is well into the implementation phase.
Um hum… I’ll be objecting and demanding Mr. and Mrs. appear before me and my wife’s names. They won’t listen but I’ll object anyways.
To your primary points, yep, and it’s been going on since 12/23/1913, these actions have long been in the making. Specifically Article 1 Section 10, fleecing the American public is what the fed does and it should not come as any surprise they’re going to pick up the pace in the digital age. As they say, follow the money. ‘How is globalism working out for your personally’.
Now it may seem abstract but I think what you’re talking about is a sort of terms of service or TOS issue, if one were to speak in the modern language of tech and big data. GSE’s are updating their TOS, and the infrastructure behind it, in other words. The SQL lite application heads threw a wrench in globalist plans recently and it’s worthy of note It’s a tangent and loose tie in to this topic but I think is interesting to note none the less. How will data aggregators wield the power of the data they acquire? And to what ethical standards will they be accountable to, when dealing with our data? Reasons in 2020 to stop sharing data whenever and wherever possible, take it all back. Mortgage lending data is one of the big ones, that’s right under google gaining access to medical data. These stand to be the largest data repositories in the history of the world. To date there is no comprehensive rule set or regulatory approach to guide the behavior regarding the use of such data. Joans spaghetti map of appraisal regulation comes to mind. Think that and apply a googleplex multiplier. It’s all playing out right now in real time. And that’s why I have a one a day advertisement limit. Many days I actually accomplish this effectively. I like to think that acquiring my data has a negative return. I have a don’t call me I’ll call you policy and good luck trying to reach me, I’m more likely to reject any brand that cold solicits to me and that resentment grows with each passing solicitation. Globalists are pushing data monetization but some of us are still arguing for ad free spaces. That’s a safe space to me, a place without rampant commercialization. I went to the mall yesterday, had not been there in a long time. I leaned over to my wife and girls while pointing at some of the clothing and said; “Care to be a walking advertisement for our company, only 79.99?” Ha! Lemmings. It won’t be long now before your mortgage loan comes with an automatic profile setup on the gse social networking forum or something along those lines. It’s happening in ways people do not yet even understand or grasp. Back to the Future, again. My vote is to put the brakes on big data because big data has already done more harm than good.
Correct. MISMO stated this as a goal in their talking points/pain points suggested discussion topics that I’ve previously posted here. 100% COMPLETE AUTOMATION of the loan process; including BOTH residential and commercial real estate appraisals.
I have clients requesting UAD ratings on 1025 forms.
Those are clients that should be told it is inappropriate. Client conditions cannot be so limited as to adversely affect results. We can go really far into the weeds on this, but UAD formatting is inconsistent with income reconciliation analysis formats in which many adjustments are simply not made on an individual line-item basis in the sales comparison grid.
Treating 2-4 units ‘just as if’ they were the same as SFRs is a bad habit. Just because Fannie and Freddie (and HUD/VA) have accepted this for decades, does not make it correct. I own small residential income property. I can say from personal experience the NET income was more of a factor than whether it had ‘design & appeal’ differences. Gross Income or Rent Multipliers was no more than a 5-second pre-screening concern to see what I would look…not what I would buy. The condition was an overall relative analysis-not absolute for the front detached unit and the rear detached unit. The typical FNMA income and operating expense statements ARE in fact misleading analyses! These are underwriting / buyer cash flow analyses (including mortgage payments expected) rather than any recognized income analysis using an Overall Caliptailization Method, or Yield Analysis.
Appraisers that understand income property are far less likely to treat it with the same rote concerns they use for SFRs. The more units involved (3 or 4 vs 2) the less similar it is to an SFR.
Appraisers that try to fill out 1025 using UAD metrics are not likely to understand nuances like leased fee to fee conversions; or whether fee can even be achieved under rent control or other regulatory scenarios. Their use of UAD metric would certainly leave me unconvinced they knew what they were doing.
Lastly, UAD use on 1025’s is FAR more likely to result in a complaint than traditional methods of reporting. Its going to make the reviewer break out their magnifying glass. Maureen Sweeney said it much more succinctly than I.
We are not poking fun or teling others that their work is ‘bad’. It is merely an effort to discourage a bad practice.
You’re so intelligent and well versed in real estate. Now I have learned you’re a multi family investor as well. I’m starting to understand some of the secret to your success.
Yeah, and what gives with the definition of 4 units being the max and that being the line for fnma residential? As if anything more than a sf is not commercial right off the starting line. Side by sides, stacked, quads, triples, singles with adu’s, separable lots, changing city zoning, and that one poor succer in the urban oasis whom never sold his tiny city ranch, now overshadowed by a 15 story condo complex on all possible sides. Hello neighbor(s)! Drove past this lonely hold out 2 acre lot off the highway, sandwiched between 2 highway junctions, a commercial office complex, and retail plaza. The walls closed in around him and now who would even want that triangular lot, rent it for billboards I suppose. It won’t be long before the old untended tack shack goes from a severe lean to being flat on the ground. Dude’s commercial for sale sign is leaning severely too, how long has than been up? As long as I can remember. Ha!
For the reasons stated in other posts though, best practices is the appraisers sole discretion and as long as the scope of work is properly formed for the task at hand, there should be no predefined judgment of what constitutes best practice when applying language.
Be verbose, or be brief. Be technical, or be long winded. Give them something they will learn from even if they do not speak the language of real estate, or apply a craft language meant to speak to a limited audience. Appraisal problems, appraisal solutions. It’s all open ended based on the scenario at hand. Probably the vital point we would all agree on is competency to accept such an order in the first place. Credible assignment results, all of that.
I see it all the time