One of Diane’s favorite songs is the Neville Brothers cover of an old Sam Cooke song, A Change is Gonna Come. Diane is an appraiser and likes to play the song right after she electronically transmits an appraisal report to a client. She has a running bet with her husband that before the song ends, she will receive either a phone call or an email asking her to make a change to the report. She usually wins the bet.
At the root of Diane’s wager is the environment in which the majority of residential appraisers operate. With many lenders outsourcing the appraisal management function to third-party vendors, they more quickly pick out items requiring change requests. Another reason for change requests is the fact that even when the Appraisal Management Companies quality control is finished and the report has been sent to the lender, the lender’s underwriter(s) will review the report and may ask for additional changes. Either way, residential appraisers often deal with a seemingly never-ending series of stipulations, callbacks, and requests for changes to their appraisal reports.
This blog series will explore a number of various scenarios involving requests to change the content of a report by deletion, addition, clarification, or correction. Some of these requests are fairly innocuous, but some are potentially hazardous, if not properly handled. Often, these requests can result in the appraiser unknowingly violating USPAP.
Additionally, in this blog series, we’ll use several examples of situations where the appraiser has to ponder the question, "Is this a new assignment or just a new report?"
Example #1) Diane receives a call regarding a recently completed report in which her appraised value was less than the sale price. The seller agreed to lower the sale price and the buyer increased the down payment. A new sales contract was executed, and the lender now is asking Diane to review the new contract and change her report to reflect the price stated therein. The lender says they are OK with the original effective date.
Example #2) After Diane complies with the lender’s original request, she gets another phone call from the lender. This time stating that their compliance officer has requested that Diane changes the effective date on the report to a date after the date of the new sales contract.
The essential difference between the two examples is that in one of the examples Diane is asked to change an Assignment Element and in the other example she is not.
Assignment Elements are what make an appraiser’s world go round. They are the key to everything we do as appraisers and how we develop the Scope of Work for each assignment. In case you need a refresher, here’s the list.
- Intended use
- Client and other intended user(s)
- Type and definition of value
- Effective date
- Relevant subject property characteristics
- Assignment conditions
- Extraordinary Assumptions
- Hypothetical Conditions
- Jurisdictional Exception
These assignment elements are also the keys that unlock the criteria for editing, changing, or modifying an appraisal report; resulting in a new assignment or just a new report. It’s a very simple process. If any of the assignment elements change, then it’s a new assignment. If none of the assignment elements change, it’s simply a new report.
In example #1, Diane is asked to review the new sales contract and report the renegotiated sale price. None of the assignment elements have changed, so this is not a new assignment. It is, however, a new report. Because it is not a new assignment, a new workfile will not need to be created, although Diane will need to insert a true copy of the new report in the existing workfile. As a practical issue, the new report should not utilize the same file name as the original report. Many appraisers add a sequential identifier such as "A" or "V2" at the end of the original filename.
In the second example, Diane is asked to change the effective date, which is an assignment element. The ensuing report may closely resemble her first report and the amount of time that this new assignment requires may be minimal, but it’s important that Diane approach this as a new assignment. None of the other assignment elements have changed, so Diane can focus on any ramifications that are the consequence of a new effective date. She will need to look at market activity for the period between the effective date of the first assignment and the new effective date to determine whether any new sales have taken place or market conditions have changed. In most cases, this will not be a factor but in some cases a "better" comparable sale may have become available, or in extreme cases, a more significant change may have taken place, such as an announcement of a major local employer ceasing operations.
If this is an assignment performed in compliance with Fannie Mae/Freddie Mac requirements and reported on a Fannie Mae/Freddie Mac form, a new inspection of the property is necessary in order to comply with the statement on the report that the effective date of the assignment and the date of the inspection are the same. There will also be workfile obligations for Diane, because a new workfile must be created for the new assignment.
If you want a couple of references that reinforce the above examples, go to your current 2014-2015 edition of USPAP and check out Frequently Asked Questions #137 and #139 for example #1, and #136 for example #2.
Future topics in this blog series on "New Assignment or New Report?" include: adding a comparable at the client’s request, handling reconsideration of value requests, changing the borrower’s name and several others.
And if you want to hear that Neville’s Brothers cover of A Change is Gonna Come, then here’s a link for you: https://www.youtube.com/watch?v=e_LK9XyWFX8