Saturday, September 17, 2011

UAD and USPAP

Universal Appraisal Dataset (UAD) has been a hot topic this month.  If you have purchased a home or refinanced your existing home via a conventional mortgage this month, then you have probably seen its effects. 
In a nutshell, UAD is a product of the recent Frank-Dodd Legislature that went into effect earlier this year.  It is designed to standardize Fannie Mae and Freddie Mac appraisal reports, thus making reviewing and finding potential fraud easier.  In addition to the fundamental language of the report changing (you need a definitions page to decipher the report), there is a lot of additional data that is now entered into what used to be a summary report. 

There are three tiers of appraisals.  Restricted use reports have very little data in them.  Summary reports have just enough data in them to justify the conclusions in the report, but not all the data is presented.  Finally, there is a self-contained report, where all the data is presented.  As you go up in the tiers, the fee should go up.  As a residential appraiser, I am usually engaged by lenders to provide a summary appraisal report.  That means they don’t want all the details, just enough to make an informed and educated decision on lending for that particular loan.  However, with the additional data that they are now requiring, we are on the verge of all our reports becoming self-contained. 

In addition to the inclusion of additional data, the language of the report has changed.  Let me give an example.  Here is what used to be entered on the sales grid of a 1004 form for the basement:
Basement
50% Finished
Pretty straight forward wouldn’t you say?  Well, here is what UAD now requires in the same field with the additional data:
1800sf900sfwo
1rr0br.0ba0o
What this deciphers into is that the basement is 1800SQFT, 900SQFT of it is finished with a walkout and one recreation room.  Here is my problem with all this.

The body of standards that govern the appraisal industry is the Uniform Standards of Professional Appraisal Practice (USPAP).  In the preamble of USPAP it states “It is essential that appraisers develop and communicate their analyses, opinions, and conclusions to intened users of their services in a manner that is meaningful and not misleading”.  UAD has been taylored to the lender in the transaction and does not take into consideration the other intended users in a transaction, such as loan officers, underwriters, Realtors, buyers and sellers.  I personally believe that UAD is a violation of our preamble.  How can we maintain a high level of public trust if the product we are producing is not understood by the majority of the public?  Oh sure, we provide a definitions page on our reports that explain the abbreviations, but no such information on how that data is now entered. 

I unfortunately don’t have an answer for this.  Appraisers are still fighting last years battles, and seem to be of little effect when it comes to initiating policy that governs our industry.  We have a tendency to react, which puts us at least a year behind the political eight ball.   I guess our independent, impartial and unbiased nature leaves a bad taste in the majority of our mouths when it comes to getting politically involved.  I do not exclude myself from this majority, I would rather write letters to my Senators, Represenatives and industry leaders as opposed to engaging in the political rat race.  Thankfully, there are those in our field who take on this burden, and they have my thanks. 

Well, what do we have to look forward to?  How about the FHA jumping on board with UAD starting in January of 2012?  Happy day, I can’t wait!

Friday, September 2, 2011

ANSI Standards


You would be surprised how many times I am questioned about the square footage (SQFT) of a home.  As Real Estate appraisers, we are required to measure homes based off American National Standards Institute (ANSI) guidelines.  Hopefully, I can put some of these questions to rest by explaining some of the most common misconceptions.

“Why is my SQFT so low?  We just added a sun room.”  Depending on how you plan the addition of your room will determine if it can be added as SQFT.  The area must be accessible through a finished portion of the home and must be a four season room (heated and cooled).  Recreation rooms, bonus rooms and sun rooms that come off unfinished portions of the home (i.e.  garages) do not meet ANSI standards.

“Why wasn’t the SQFT in the basement included?”  It actually was considered in the final opinion of value, just as a separate component from the above grade SQFT.  When we input the data into our reports, we use the above grade SQFT and the amount of the basement that is finished.  This is a technical point which we sometimes depart from when dealing with berm homes.  The above grade SQFT, basement, and the portion of the basement that is finished are all adjusted separately. 

“Why wasn’t that room considered in the SQFT?”  In order to be considered in the SQFT, the room must meet two requirements.  First, the room must be habitable (which mean finished walls, ceiling and floor).  Next, the room has to have utility.  In order to have utility, it must serve a purpose that people want, which would include closets and storage spaces. 

Let me wrap up by tying off a few loose ends.  Staircases can only be counted once, so they are excluded from the second floor.  Ceiling heights need to be at least 7’ with a few exceptions.  If the room is habitable, has utility and is connected by a finished portion of the home, then it may be included in the SQFT. 

I’ve attached a link to the ANSI document that will shed light on the details that I’ve outlined in this article.  Again, these are the most common questions I hear on a regular basis about the SQFT of homes, and I hope I’ve answered them.  If you have any more questions, please post a comment and I’ll do my best to answer it for you.           http://krec.ky.gov/legal/Pages/ansi.aspx.