Friday, March 29, 2024 | The Latest Buzz for the Appraisal Industry

Appraisal-speak: New Assignment

A fellow appraiser recently reached out to me and we had an opportunity to have an appraiser-to-appraiser email exchange. The issue related to a client’s request for a 1004D form:

I received a request from a lender client to complete the 1004D Update Appraisal. I did the original appraisal four months ago. I referred my client to the 2018-2019 USPAP Advisory Opinion 3 “Update of a Prior Appraisal”, but I am still having trouble getting them to understand that this is a New Assignment.

The term “new assignment” is technically correct to use in this type of scenario. For the 1004D Update Appraisal, you are communicating a new value opinion using a new effective date, as a figure relative to the prior value conclusion. (Remember that a value opinion can be communicated as a single-point number, a range, or relative to another figure.)

Sometimes, though, clients might become confused with the term “new assignment”. If you refer to it as a “new assignment”, they might assume you mean

  • a different property,
  • a new full interior-and-exterior inspection,
  • a long turn time or inappropriate fee,
  • a disruption to their borrower
  • (even though you mean none of those things).

“New assignment”, for most intents and purposes, is appraisal-speak: it has meaning to the appraiser – but not necessarily to the client.

The Scope of Work Rule lists assignment elements for an appraisal assignment. If any of the assignment elements change after an assignment, that would indicate you have a new assignment on your hands. This is important to an appraiser because of an appraiser’s obligations under the Record Keeping Rule, determining the proper scope of work, including a correct three-year service certification, and other USPAP and state-specific requirements. So, the implications of a new assignment are critical to the appraiser.

To the client, though, they just want the report. They don’t necessarily care which items are being retained in the appraiser’s files, what assignment elements are, and so on. If your client is misinterpreting your use of the term of “new assignment” (or is otherwise confused by it), you might describe the service to your client in basic terms, without actually using the term “new assignment”:

“Thank you for the request. I can complete the 1004D Update Appraisal. As you know, I’ve previously provided a service to you on this subject property (appraisal, effective mm/dd/yy); I’ll also disclose this in the certification of my Update Appraisal report with the 1004D. As the form instructs, I’ll revisit the property, take photos from the exterior, and use that visit date as the new effective date on the form.” [Illustrative language only; your scenario may vary.]

Here are a few more questions we discussed related to this issue:

  • How does the question on the 1004D Update form “Has the market value of the subject property declined since the effective date of the prior appraisal?” affect my effective date and whether this is a new assignment?

In order to develop a value opinion as of today (which is necessary for comparing the subject property’s current value to what it was four months ago), you must employ a new effective date (today). If we look at the Scope of Work Rule, the effective date is an assignment element. Since that assignment element changed from the prior completed appraisal, we know this current service cannot be considered the same assignment, especially related to the workfile, scope decisions, and other obligations.

  • How do I ensure my workfile meets USPAP and state requirements, since this will be an easier shorter assignment?

Don’t assume your workfile obligations are different simply because an assignment takes less time. First, read through the Record Keeping Rule as a refresher. Then, check that your state doesn’t have workfile requirements that are above-and-beyond the USPAP minimum. Finally, remember that the 1004D Update Appraisal is an appraisal. So, while you might be able to re-use certain data and information from the first assignment, you will undoubtedly need to perform new research and analysis, particularly as a result of the new effective date.

And remember that the Record Keeping Rule allows an appraiser to reference the location of workfile components. For example, your new workfile might reference items contained in the “old” assignment’s workfile, rather than having to copy every item from your first assignment’s workfile into your new assignment’s workfile; of course, this will vary case by case.

  • Lines 31, 32, and 33 in Advisory Opinion 3 “Update of a Prior Appraisal” is describing the client “seeking a more current value or analysis of the property that was the subject of a prior assignment”. That’s what my client is asking for, right?

In your scenario, the client is asking for the 1004D Update Appraisal to be completed, which seems to be what that portion of Advisory Opinion 3 is describing: a new assignment as a result of a new effective date.

  • So, in this case, what time period would I research and analyze, to determine whether the subject’s value has declined (or not)?

This is an appraisal methods question and there is no blanket answer. For example, you might choose to study only the time period since your prior appraisal, a longer period leading up to the new effective date, or both, depending on factors such as market dynamics, type of data, quantity of data, the particular property, and the method(s) of analysis you choose to use.

Joshua Walitt is a USPAP instructor and teaches courses to associations, regulators, appraiser firms, lenders, and management companies. If you have USPAP questions, contact joshua@walitt.com or go to walitt.com.

Originally posted to LinkedIn by Joshua Walitt.

This post was originally published on this site

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