Closets and USPAP standards, how are they alike?

Closets and USPAP standards, how are they alike?

The Appraisal Standards Board (ASB) is treating retired USPAP STANDARDS 4 and 5 like empty closets….. they just had to fill them! The new STANDARD 4 is titled Appraisal Review, Reporting. STANDARD 5 is now titled Mass Appraisal, Development. This ‘Food for Thought’ is going to discuss issues related to the new STANDARD 4.

We can’t talk about the new STANDARD 4 without discussing the existing STANDARD 3.
As you probably know, STANDARD 3 Appraisal Review, encompasses both appraisal review development and reporting. Basically, the ASB bifurcated STANDARD 3 making STANDARD 3 Appraisal Review Development and STANDARD 4 Appraisal Review Reporting.

Typically, in the Summary of Actions Related to USPAP Changes, the ASB will strike through words removed and underscore new words, but due to the extent of the changes to STANDARD 3 and the addition of STANDARD 4, the specific edits are not shown in underscore and strikethrough text. Our recommendation is to read them in their entirety. (STANDARD 3)

One notable change, that relates directly to STANDARDS 3 and 4 are changes to the definition of APPRAISAL REVIEW. ASB chose to eliminate “communicating” an opinion, as part of the definition and added a second part to the definition, making Appraisal Review useable as either a noun or an adjective. Here is the new definition:

APPRAISAL REVIEW :(noun) the act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment; (adjective) of or pertaining to an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment.

To be able to fully grasp the new definition, one must also read the ASB’s new definition of ASSIGNMENT: a valuation service that is provided by an appraiser as a consequence of an agreement with the client.

All in all, the ASB definition of APPRAISAL REVIEW, like many definitions by other reliable sources, is long and perhaps a bit difficult to process. I don’t want to pick on the ASB to much, because they have to approve our next USPAP course, but when I read those words closely, I believe I know what they mean.

A summary might be: APPRAISAL REVIEW: 1. (noun) an opinion about the quality of another appraiser’s appraisal or appraisal review assignment; (adjective) when it is used as a modifier for a noun like: (appraisal review) report.

I have a question for you. Why, in the definition of APPRAISAL REVIEW does the ASB describe an appraisal review as, developing an opinion about the quality of part of an appraisal or appraisal review assignment? Do you think they really wanted to differentiate between part of an assignment and a whole assignment?  In the past when I have conducted an appraisal review, I was sent an appraisal report to review; a report is only part of an assignment. Perhaps, this is why they refer to it as part of the assignment. What do you think?

Well, I hope this has provided you with an opportunity to review and think about some of the changes that have been promulgated for the 2018 – 2019 USPAP publication.

We really enjoy the feedback we receive from our readers and look forward to your comments about this Food for Thought.

To help us continue to grow our catalog of seminars and provide you with what you need, send us a quick note describing a seminar you would like provided.

We have a terrific new course coming out this summer called Concept to Completion. It teaches appraisers how to effectively review blueprints/residential building plans, conduct periodic inspections of new construction, and complete the final inspection whereby the appraiser’s hypothetical value is reconciled based on the completed residential property. Graphically rich with terrific videos, we think it’s going to serve a need and be really enjoyable. Stay tuned for our discount opportunities.

As always, good luck and do good work.


Appraising Energy Efficient Home with Few Comps???

Appraising Energy Efficient Home with Few Comps???


Appraising energy-efficient homes when there are so few comps and the properties are loaded with solar panels, tank-less water heaters, low E windows, geothermal heat pumps; it’s like lions and tigers and bears, oh my!


Both Fannie Mae and Freddie Mac require that an appraiser obtain competency to complete an appraisal PRIOR to accepting an appraisal assignment. They require “requisite knowledge.”


USPAP requires in appraiser to have the requisite knowledge prior to accepting an assignment and act competently during the assignment.


Fannie Mae’s Definition of an Energy Efficient Property:

An energy-efficient property is one that uses resource-effective design, materials, building systems, and site orientation to conserve nonrenewable fuels.


Energy Efficient Improvements

“An energy-efficient property is one that uses resource-effective design, materials, building systems, and site orientation to conserve nonrenewable fuels.” (Fannie Mae Selling Guide)

Special energy-saving items must be recognized in the appraisal process and noted on the appraisal report. For example, when completing an appraisal report (Form 1004), special energy-efficient items are addressed in the Improvements Section under the Additional Features Field. The nature of these items and their contribution to value will vary throughout the country because of climactic conditions, differences in utility costs, and overall market reaction to the cost of the feature. Some examples of special energy-efficient features may include, but are not limited to, energy efficient ratings or certifications, programmable thermostats, solar photovoltaic systems, low-e windows, insulated ducts, and tank-less water heaters.

“Solar panels that are leased from or owned by a third party under a power purchase agreement or other similar arrangement are to be considered personal property items and are not included in the appraised value of the property. See B2-3-04, Special Property Eligibility Considerations, for additional eligibility requirements for properties with solar panels.” (Fannie Mae Selling Guide).


What if you don’t have any comps? Can you still produce an appraisal that’s acceptable to the Secondary Mortgage Market?


The answer is absolutely yes, but you will have to develop a residential income approach and develop the cost approach. While you may not consider these reliable indicators of value for the typical owner occupied residential property; when it comes to energy-efficient homes, they provide the most accurate indicators of value. Consider this, a typical 3500 square-foot home has energy costs of $5000 per year. If an energy efficient home in the same community and the same amenities has energy costs of only $1000 a year is there a difference in value?


You bet there is! Learn how to develop appraisals that will be acceptable to the Secondary Mortgage Market, even when you don’t have comps!


Get the requisite competency to perform appraisals on energy-efficient homes and understand how to charge your clients for them by attending our online: “Appraising Energy-Efficient Residential Properties” asynchronous course. After you have successfully completed the course you will become listed on the Energy-Efficient Professionals Qualifications Registry (EEPQR) at no additional cost.


Good luck and do good work.



Assumptions Missing from USPAP

Assumptions now missing from USPAP; was it the leprechauns?


If only we could blame the leprechauns for stealing the definition of ASSUMPTION from USPAP. And, maybe if it was the leprechauns, they would’ve left us a pot of gold, but no, it was the ASB.


USPAP 2018-2019 no longer contains a definition for an “ASSUMPTION” and the definition of EXTRAORDINARY ASSUMPTION has been revised.  The word assumption appears 85 times in the USPAP Publication, so we may want to agree upon a meaning.


By eliminating the definition for ASSUMPTION, “that which is taken to be true.”  We must assume that the definition for ASSUMPTION is the same as that used in general speech and defined by Merriam-Webster’s dictionary:


3 b:   fact or statement (such as a proposition, axiom (see axiom 2), postulate, or notion) taken for granted.


When does an assumption become extraordinary?  If it’s unwonted, odd, aberrant, or preternatural? I think it’s a postulation! A postulation, according to Webster’s dictionary: 2 a:  to assume or claim as true, existent, or necessary:  depend upon or start from the postulate of.


There is no definition of extraordinary assumption in Webster’s dictionary. That made it extra important that the ASB create the definition for EXTRAORDINARY ASSUMPTION used in the USPAP and the appraisal profession.  The “term of art” EXTRAORDINARY ASSUMPTION has been redefined in 2018 – 2019 as follows:

EXTRAORDINARY ASSUMPTION: an assignment-specific assumption, directly related to aspecific assignment, as of the effective date regarding uncertain information used in an analysis, of the assignment results, which, if found to be false, could alter the appraiser’s opinions orconclusions.

I would like to humbly make a recommendation to my fellow appraisers; add the definitions of assumption and extraordinary assumption in the addendum section of your appraisal reports. And, if underwriting calls, just explain to them, in simple terms, it’s a postulation!


Stay tuned to our next Food for Thought when we provide a comparison between Extraordinary Assumption and a Hypothetical Condition and examples of when they are respectively appropriate.


Good luck and do good work,


Definition of ASSIGNMENT CONDITION -2018-2019 USPAP

The definition for ASSIGNMENT CONDITION will not exist until the 2018 – 2019 USPAP publication goes into effect, but where have we seen this term? Previously it was referenced in the SCOPE OF WORK RULE.

Are you ready for some tongue-in-cheek? You think the ASB needed to fill the void left behind in the USPAP publication when they eliminated the definition for ASSUMPTION? Probably not. In fact, it was to clarify what the term meant and the appraiser’s responsibility when accepting assignments.

This is part of a package deal where the ASB is clarifying an appraiser’s obligations prior to agreeing to perform an assignment. Included in this package are revisions to the definition of Assignment, Intended Use, and Intended User.

The following is a new definition for ASSIGNMENT CONDITIONS:

ASSIGNMENT CONDITIONS: Assumptions, extraordinary assumptions, hypothetical conditions, laws and regulations, jurisdictional exceptions, and other conditions that affect the scope of work.

Comment: Laws include constitutions, legislative and court-made law, administrative rules, and ordinances. Regulations include rules or orders, having legal force, issued by an administrative agency.

First, let’s take a look at the new definition for ASSIGNMENT: 1) An agreement between an appraiser and a client to provide a valuation service; 2) the a valuation service that is provided by an appraiser as a consequence of an agreement with a client such an agreement.

ASSIGNMENT: A valuation service that is provided by an appraiser as a consequence of an agreement with the client.

Concise, clean, streamline, easy-to-understand! Although, you won’t find a definition anywhere else that defines an assignment as a valuation service, making this a term-of-art that you may want to include in a definitions section of your appraisal addendum’s.

Anytime you have a definition that’s a term-of-art, something that’s germane to a specific profession, it’s a good idea to include them in a definitions page; you may consider having a page that has acronyms and definitions. Your addendum is a good place to house a definition/acronym page.

Two thumbs up to the ASB, I personally believe there should be more definitions in the USPAP publication to ensure clear understanding of our appraisal reports and help maintain the public trust in the appraisal profession.

May your assignment conditions be warm and sunny with a light ocean breeze.

Good luck and do good work

Enhanced Property Inspection Waiver (PIW), Fannie Mae

Enhanced Property Inspection Waiver (PIW), Fannie Mae 

What could possibly go wrong!? Wasn’t it less than a decade ago that our tax dollars provided $189 billion to Freddie Mac and Fannie Mae because their poor financial condition rendered them unable to fulfill their mission without our tax dollars via government intervention?

No inspection on many properties being refinanced, no problem. The physical conditions of those properties couldn’t possibly have changed, could they? Heck, without inspection, the improvements may no longer even exist. There is a word that comes to mind as I consider writing this article……. Crazy!

On December 10, 2016 Fannie Mae rolled out a Christmas present for the appraisal community that has sent Scrooge like ripples through the industry. We are hearing from some folks that as much as 50% of their business has disappeared overnight. That’s the day Enhanced Property Inspection Waivers (PIW) went into effect for those lenders that have Desktop Underwriting (DU).

This article will provide some of the background details as well as some things that you may do with your skill sets to offset these initial losses in business.

Why did Fannie Mae take these steps?

During 2016, in some parts of the country appraisers routinely provided appraisal turnaround times of 3 to 4 weeks, with no daylight in sight.

Fannie Mae wanted to streamline the lending process on properties being refinanced.

Faster loan process. Without having to request and review an appraisal, the enhanced PIW speeds up the steps in loan origination.

Reduced uncertainty. With a PIW, the marketability of a home or investment property is no longer dependent on the lender to enforce.

Lower origination costs. Without the extra costs associated with appraisals, a PIW can save consumers money.

How PIW works according to Fannie Mae:

Property inspection waiver (PIW) is an offer to waive the appraisal for certain refinance transactions.

PIW offers are issued through Desktop Underwriter® (DU®) using Fannie Mae’s database of more than 20 million appraisal reports in combination with proprietary analytics from Collateral Underwriter® (CU™) to determine the minimum level of property valuation required for loans delivered to us.

How it works.  When a DU loan casefile receives a PIW offer and it is exercised by the lender, Fannie Mae accepts the value estimate submitted by the lender as the market value for the subject property and provides relief from enforcement of representations and warranties on the value, condition, and marketability of the property.

The lender is required to represent and warrant that the data (other than the value estimate) submitted to DU is complete and accurate, and lenders must order an appraisal if they have reason to believe that the property’s current market value should be confirmed. For example, a property located in an area impacted by a recent disaster should always have an appraisal.”

For homeowners to be eligible to request a waiver, they must have a Fannie Mae-approved loan that they are seeking to refinance. For those looking to receive a lower interest rate or change the term of the loan by refinancing, the loan-to-value (LTV) ratio can be no greater than 90% for primary and second homes.

On a cash-out transactions, the maximum LTV for the waiver is 70%.

For investment properties, the LTV must be 75% or lower for rate/term transactions. To take cash out, a 60% LTV is required for the waiver.

For both primary and second homes, as well as investment properties, a previous purchase appraisal is necessary.

In the meantime strengthen your professional knowledge by enrolling in one of our terrific discounted seminars today!

Better education makes better professionals.

“Food for Thought” ASB Third Exposure Draft public hearing 17 October 2014

“Food for Thought”

By: Francis X. (Rich)  Finigan, Education Director Calypso Continuing Education

Should you be responsible for confidential information after you have left a firm or organization and no longer have control of the appraisal work file?

The Appraisal Standards Board (ASB) Third Exposure Draft public hearing was held in Washington DC on 17 October 2014. The meeting was well attended by state regulators who expressed their concerns over some of the current changes. Nonetheless, and much to my surprise, there was a collegial atmosphere and were some sincere moments of joviality.

The meeting was convened by ASB Chairman Barry Shea. I was impressed not only by the testimony of those attending the hearing, but the manner in which the ASB received and processed commentary with clarifying questions and discussion.

The hot topics were confidentiality and changes to Report Writing, Report Drafts and the RECORD-KEEPING RULE.

Confidentiality: Regarding changes to the Confidentiality section of the ETHICS RULE, there was general consensus, by the board and regulators attending the hearing, that the current iteration of the changes in the Third Exposure Draft “required further revision.

The following are two of the Draft changes to confidentiality that received considerable attention at the hearing:

412        An appraiser must ensure that employees, coworkers, subcontractors, or others who may

413        have access to confidential information or assignment results, are aware of the prohibitions

414        on disclosure of such information or results.

What does “ensure” mean and who are “others”?

415        An appraiser must maintain confidentiality of information within the organization

416        that employs the appraiser. This requirement applies to the appraiser even after

417         his or her association with that firm or organization ends.

How does an appraiser control others from a firm s/he is no longer associated with?

As appraisers most of us have an idea about confidentiality, because we have maintained some sort of standard throughout our careers. The ASB is actively seeking your opinion. The three or four sentences that you share may make a significant difference in the future of your career and the careers of your peers!

Send your comments to:   The Third Exposure Draft can be found at: .

In our next “Food for Thought “we’ll explore the changes to the Definitions of a Report, a Report Draft and the RECORD KEEPING RULE.

Could these changes promote undue influence and damage the public trust?


Appraising the Value of a Mold Contaminated Building

Losses due to mold contamination for your property–owning clients may not be limited to the cost of repairs aka cost to cure. Stigmatized properties can take months, even years, to recover from a blighted image. In fact the Uniform Standards of Professional Appraisal Practice (USPAP)  states in provision AO9:

“The value of an interest in impacted or contaminated real estate may not be measurable simply by deducting the remediation or compliance cost estimate from the opinion of value as if the prop­erty is unaffected. Other factors may influence value, including any positive or negative impact on marketability (stigma) and the possibility of change in highest and best use.”

Every appraiser utilizes the same methodology when developing an opinion of value or, in other words, when estimating the market value of a property. The techniques used by appraisers are very specific. Every appraiser must consider three methods to value on every appraisal assignment, unless otherwise requested by their client. The three methods to value are the mar­ket approach, also known as the comparable sales analysis method, the cost approach and the income approach.

Market Approach

The most common method used for residential real estate is the market approach, or compara­ble sales analysis method. The cost approach can also play an important role in appraising residential properties contaminated with mold.

When using the market approach to value, the appraiser scours the market place for properties of similar size, design and construction situated in the same or a similar neighborhood as the subject property. These are called comparable sales or comps. Comps typically have sold with­in the last year of the appraisal assignment. Usually three comps are adequate to establish an opinion of value for the subject.

How many homes in the neighborhood are contaminated with mold? The search for mold contaminated properties may take the appraiser to other geographic regions.

The appraiser may need to conduct four appraisals using comparable sales analysis in order to accurately derive a value of a property rendered uninhabitable by microbial amplifica­tion. All four may be in different geographic markets.

First, similar properties suffering from the same type of contamination must be located. Similar contamination can be identified by the type of bioaerosal contamination, the health effects suf­fered by the residents attributable to mold and also the cost estimates to cure the defect. This is not as difficult as it sounds. This is a big coun­try with more and more of these contaminated homes emerging daily. However, this process may be expensive.

The next step is to establish a base line value for each property. The base line is derived as if the properties were not contaminated and basically involves conducting an appraisal on each comp. The appraiser needs to search for three unaffect­ed comps from each primary comp’s region. The ideal comp is located on the same street. If the appraiser is too far from a familiar market place, he or she may need to work with an appraiser from that market place to creat the baseline values.

Once the appraiser has established the hypo­thetical value of the comps as if they were not contaminated, the rest is simple math. The  actual sale price of the comp is compared to the comp’s value [as?] if it was not contaminated to  develop a percentage ratio for the diminution  suffered. A weighted average for the percentage of loss is created from this data.

The average percentage of value loss is then fac­tored against the uncontaminated theoretical value of the subject property. This provides the market approach estimated value for a mold contaminated property.

Cost Approach

Having arrived at an estimate via the market approach, the appraisor now needs to employ the cost approach to support these findings.

When employing the cost approach, the appraiser estimates the cost to build the subject property at today’s building prices. Based on visual observation of the readily accessible areas, the appraiser determines how much overall depreciation has taken place. The significant indicator of depreciation is deterioration of major components like the roof, siding, walls, windows and heating/cooling systems. The depreciation is determined utilizing the “Age Life Depreciation Method” or by subtracting the overall percentage of depreciation from the cost to build new.

In a property contaminated by mold, the cost to remediate would be referred to as “cost to cure.” The cost to cure is subtracted from the depreci­ated value of the subject property. This estimate of value should be very close to the value arrived at by the market approach, thereby lending strong credibility to the results.

Income Approach

The income approach is seldom used for resi­dential properties, but can be relied on heavily for commercial properties. As the name implies, income is the primary data utilized for the determination of market value in this approach. The gross income is factored against all of the expenses intrinsic in the ownership and opera­tion of the subject property. The amount remaining, or the net revenue, is then multi­plied by the local capitalization rate. The capi­talization rate is extracted from comparable sales analysis and varies from region to region with market trends.

When appraising a mold contaminated com­mercial property, the appraiser will amortize the cost to cure and deduct it along with any ongo­ing testing and monitoring costs as if they were expenses from the gross revenues.

To identify the actual value loss, the appraiser will take the total of the amortized costs to cure and the ongoing compliance costs and factor that total against the capitalization rate. For example, if monitoring costs are $2,000 pr year and the capitalization rate is 10 percent, the loss in value attributable to that expense is $200,000. Other factors can come into play as well, such as the length of time that monitoring might be required.

Another issue that must be addressed is that of “highest and best use” for the subject property.

Environmental contamination can result in a change of the property’s highest and best use. If that occurs, and the new highest and best use for the subject property projects a market value that is less than the highest and best use prior to contamination, the appraiser will consider those factors and how they impact the ultimate value loss suffered by the property.


Stigma can be measured by comparing the amount of time a contaminated property stays on the market compared to the amount of time a non–contaminated property was exposed to the market place before selling. Stigma can last for months or even years.

Another way to gauge stigma is to write letters to lending institutions querying their interest in financing a theoretical property, a “virtual sub­ject” similar to the subject. Letters can also be written to local realtors asking if they are inter­ested in listing the virtual subject property and to insurance companies about insuring the vir­tual subject property.

Case in point, I was appraising a mildly con­taminated commercial property in Vermont. To help support the assertion that stigma existed, I wrote three letters to lending institutions describing a financially strong borrower who already owned a property. I described conditions similar to those of the subject and asked the financial institutions if they would be inter­ested in further exploring a loan with my client. The responses were polite, yet all declined the opportunity at that time and gave no indication of when in the future they might be interested. Ironically, one of the lending institutions already held the mortgage for the subject.


To effectively complete an appraisal assignment of this sort costs thousands of dollars. Even with its high price tag, however, there are many cases that would benefit from this level of profession­al endeavor. Utilizing this series of approaches, a strong argument can be made for the estimated loss of value. Conversely, if an appraiser does not go to these lengths to research, document, calculate and prove the accuracy of his or her opinion of value, it would be wise to examine the process used to develop that estimate.

Francis Xavier “Rich” Finigan

Contractor Liability: Training Your Employees Is a Tall Order

Liability lurks like an alligator waiting for trespassers to fall into its swamp. Many view the Environmental Protection Agency’s RRP rule as a nuisance, at best, and at worst an opportunity to be sued or fined.  Smart contractors have already skirted the first and most obvious liability sinkholes, by becoming individual Certified Renovators and earned an EPA firm certification. Next in the liability quagmire is training the firm’s employees.

As an EPA-accredited RRP training provider, I recognized early on that the EPA’s requirement that Certified Renovators must train their own employees in lead safe techniques, was a tall order. In short, they are expected to become overnight experts in teaching lead safe work practices. I’ve spoken about this dilemma with a number of attorneys.  All agreed, if a firm fails to train their employees in lead safe work practices or fails to document the training, then the contractors are vulnerable to law suits and EPA fines.

The risk comes in two forms. First is civil liability, which is when a customer, neighbor, or some other aggrieved party sues the contractor. Lawsuits will inevitably include statements like, “not only did the workers not utilize lead safe work practices, but they were never properly trained to utilize lead safe work practices.” Allegations like these add to the contractor’s burden of proof; i.e., the firm must convince the court that it and/or its representatives, including subcontractors, conducted the renovation in accordance with municipal, state, federal regulations, and accepted industry practices.

The second area of liability is the EPA’s power to levy fines. Traditionally, the EPA has responded to citizens’ complaints. Currently, the federal agency is proactively auditing contractors’ records.
Just this week, a contractor asked for my assistance at an EPA audit of their records. The agency asked my client for documentation proving they conducted their renovations in a lead-safe manner and provided pre renovation education with the Renovate Right pamphlet.  Because RRP regulations went into effect on April 22, 2008, my client’s audit included renovation jobs that in were conducted between 2008 and 2010.

An important part of the documentation that protects contractors from EPA fines and civil lawsuits relates to employee training. Remember, you must train your employees, but you cannot train your subcontractors. They must be trained and certified by an EPA accredited training provider.  Proper documentation of an employee’s (non certified worker’s) training should include:  worker’s name, a description of the lead-safe work practices, and dates they were trained.  Documents include a signed list of skill sets for; interior containment set up, interior cleaning with a HEPA vacuum that meets EPA’s definition of a HEPA vacuum, and knowledge of a two-bucket mop system. Training must include exterior containment techniques and cleanup. Workers must be trained in proper disposal techniques for waste, including how to dry decontaminate a goose necked bag and how to wrap large components. Last, but not least, the form must be signed by the Certified Renovator who conducted the training.

Certified Renovators may think training their employees and documenting the training is burdensome, but there are a couple of comprehensive and inexpensive training programs to assist them. Employee training programs are offered online the other on DVD. These educational offerings will no doubt train employees better, faster, and for less money than can be expected of someone whose experience might be limited to an eight-hour training program. Easy-to-complete training documentation forms are included some of the training packages. The DVDs are an excellent “How To” reference tool for Certified Renovators, while online training programs offered the benefit of final exams to help document proficiency.

When evaluating training programs, whether it’s a DVD or online, we recommend choosing one that has been professionally produced and provides hands-on demonstrations of lead-safe work practices, including tricks of the trade from contractors who are veterans in building containment. Every coin has two sides, and complying with government regulations to avoid liability is only one side. If, by training your employees to Renovate Right, your firm successfully avoids liability, inevitably you have helped to protect families against lead poisoning. That’s the coin’s shiny flipside.

Please stay tuned for more tips on how to turn environmental liability into opportunity. Until then, work smarter, better, faster and good luck in good business.