Appraisers' Free Forum

And older contemporary insist that you can't do a restricted use appraisal on anything over $250,000. I've yet to see any printed rules, and say that seems like another unwritten rule that everyone talks about, but never sees in print. So if I have a client that wants to borrow $225,000 on a $4,000,000 warehouse with no other liens, why not do a restricted report and basically say... if you foreclose on it, call me first! Is it scope of work issue, or a RESPA/FIRREA rule that determines when an appraiser can (not) do a restricted report? Whadda think USPAP gurus?

I think you're thinking of a limited appraisal. That went out the door with the advent of the SOW rule. A restricted use report can be prepared for any property, as long as the client agrees and it meets the needs of the intended users. In fact, Pina Colada says his five-pounders bear restricted use labels any time he can get away with it.

To be precise, there's no such thing as a restricted use appraisal. Older contemporary has confused development with a reporting option.

Restricted has to do with the reporting option. That much is correct. However, I think that it would be useful to look into the intent of the regulators when they designed that option. When you do that, it becomes clear that the reason it is restricted is because the reader cannot understand the report without access to the appraiser's files; this reporting option was designed to be one step below "summary" in terms of the amount of information in the report. Therefore, only the client can use the report. IMHO, it is wrong to label a report "restricted" if enough information is there to clearly understand the appraiser's analysis. So far as I know, the value of the property has absolutely nothing to do with it. But, the intended use does. I don't see how there could be other intended users beyond the client(s). However, I will admit that I am not an expert on restricted... chime in, Pina, and maybe we'll all learn something.

Steve, you understand it the way I understood it. It's not about the value of the property, it's about the intended use... FRT or not, second intended users or not, client familiar with the property or not, etc. And now that I sat in 2008 USPAP update today, I've got to wake up to do my yard work.

My response has little to do with the original question, not am I a USPAP guru :)

I think that commercial appraisals should be done by those who have the proper training an experience in commercial properties and residential appraisals by those who have the experience and proper training in residential properties.

We do some small commercial stuff but only those that Greg has the experience and competency in. However, I prefer residential work because I understand that fully and enjoy that more.

I have seen commercial appraisal by CRAs that, even with my limited experience in commercial stuff, just didn't look right (and further analysis showed I was right). At the same token, however, I have seen residential reports by CGAs who are brilliant commercial appraisers but it was apparent from reviewing the report that they were out of their dept doing that residential appraisal.

Am I making sense at all?

I get your point, and I agree. Whether an appraisal should be done has to do with competency, not certification status. I have turned down quite a few jobs in the past because I did not feel competent. I have a meeting with some city officials this coming Wednesday concerning condemnation of some property for a road project. I called another appraiser who I know specializes in this kind of work. We are going to the meeting together. I might bid it, but most likely will just pass it off to him. It's not that I'm not competent... it's that he is more competent.

Missouri has set tough standards on what licensed and certified residential appraisers can do. Unfortunately, there doesn't seem to be a way to regulate what general appraisers can do. I personally am competent to appraise residential properties, but I know some GA's that are probably not.

I have a specific question that goes back to the original.

ML's answer implied that a restricted report is not appropriate for an FRT. I have a large bank that consistently orders restricted use reports with limited scope. Usually, I just tell them why I'm bidding the way I am... the job is too complex and scope needs to include whatever... and I am bidding for a summary report format. Thay accept quite a few of my bids. One time, the contact there asked me "Will you ever do a restricted report." I told her I might if the situation was right for it. She said, "We have had some appraisers tell us they won't do them." Implication was that these appraisers would never do one under any circumstances. However, now I am wondering if they were saying they think it would never be appropriate for an a FRT. Comments?

It's a scope of work issue, Steve. USPAP says that the client is the entity that orders the appraisal; and that intended users must be identified by name or by type at the time the appraisal is ordered.

IF the client does not identify any other intended users, and, I would add, if you asked him and he said there weren't any, and you said, "What about the secondary market? Are you going to portfolio this?" and they said, "Yes, we'll be the only ones using it," then I'd say you've done a proper SOW investigation into the intended users and may therefore use a Restricted format if the client wishes. (Excuse the crummy sentence structure).

OTOH, if you just accept the order, don't use an engagement letter detailing client and intended users, and fail to ask about other intended users, then I'd say there's a SOW problem. In this situation, a Restricted report shouldn't be used (JMO).

I was aware of all of that, Jim. (And, I agree.) My question was more along the line of "If the FRT has an obligation to provide a copy of the appraisal to the borrower, is it ever possible to do a restricted report in a lending situation?" Sorry I didn't ask it more concisely. Second part of the question... is there any way around this apparent dilemma? I would think, perhaps, that the only way around it is if the bank is not obligated to share the appraisal with anyone else... i.e., if they are paying for it themselves. Yeah, don't hold your breath waiting for that to happen.

"If the FRT has an obligation to provide a copy of the appraisal to the borrower, is it ever possible to do a restricted report in a lending situation?"

The discussion in our class was basically that yes, banks can use a restricted if they are keeping it in house and/or it's below the de minimis. Most of our banks just flat out won't accept a restricted, and that's just fine by me... the only thing it saves is 2 or 3 days of typing, the research is the same grueling process. But if they order a restricted on a 1mil warehouse when the owner wants a $100,000 credit line, I'll do it with a waring that it may not be in compliance with FIRREA. If they want a restricted on a 250 unit apartment complex, then I won't do it because there just isn't enough discussion to make a credible report as required under USPAP. So appraisers still have to use good judgment and common sense when it comes to the scope of work. Thankfully, most restricted reports we do are just for Mom & Pop individuals wanting to know what to ask for a listing price. But we do have one bank that tries to stretch the limits, and I'm just going to point to FIRREA at $250,000, and what ever it takes to meet credible results. If they don't like it, they can find someone else to toss on the BBQ.

M L wrote:

"If the FRT has an obligation to provide a copy of the appraisal to the borrower, is it ever possible to do a restricted report in a lending situation?"

The discussion in our class was basically that yes, banks can use a restricted if they are keeping it in house and/or it's below the de minimis.

Did any of your class discussion ever touch upon the thing about providing a copy to the borrower? Here's the rub... USPAP says that restricted use report may be used only when the client is the only intended user. The logic behind that is that no other intended user could understand the report without access to the workfile, something that only the client has. Now, I understand that the borrower is not an intended user, but since regulations require the lender to make a copy of the appraisal available to the borrower, how could a restricted use report meet the requirements of that, since the borrower does not have access to the workfile?

Okay, maybe I'm stretching a little bit, but the obvious following question is whether some court somewhere (remember that a court decision is the original reason lenders must give borrowers a copy) is going to say the the borrower gets access to the workfile if they paid for the restricted use appraisal report.

Steve Owen wrote:Did any of your class discussion ever touch upon the thing about providing a copy to the borrower? Here's the rub... USPAP says that restricted use report may be used only when the client is the only intended user.

Correct about USPAP, but the lender does not have to provide a copy if the borrower isn't paying for the appraisal. I see your point, but the borrower is more familiar with the property than the lender... or they should be. But hay, if the court says I must give the borrower access to the work file, then that becomes a jurisdictional exception??

My lending clients do not provide the borrower a copy of the appraisal for commercial properties.

They don't charge the customer for the cost of the appraisal? In my area, the banker not giving the customer a copy would go over about as well as a pregnant nun.