In response to the changing U.S. economy and real estate markets over the years, industry practices and employer mobility policies have continued to evolve—particularly in relation to home purchase programs. This evolution of the industry, along with recent changes to the Uniform Standards of Professional Appraisal Practice (USPAP), required that the Worldwide ERC® Appraisal Task Force undertake a thorough review and revision of the Worldwide ERC® Summary Appraisal Report to ensure that the form continued to be a valuable tool under all market conditions.
And, because USPAP standards set forth the minimum requirements to be met by all state-licensed and certified appraisers, a revision to the Worldwide ERC® form was necessary to ensure that appraisers properly completing it would be in compliance with the standards.
Comprised of representatives from the appraiser community, the 2009/2010 Appraisal Task Force was led by Jeffrey M. Barta, SCRP, Jeff Barta Valuations, Inc., Waukesha, Wisconsin, and Jay K. Delich, SCRP, SRA, IFA, Arizona Appraisal Team, LLC, Scottsdale, Arizona. Members included Craig Gilbert, CRP, SRA, Craig Gilbert Appraisals, Huntington Beach, California; Arnold M. Schwartz, SCRP, SRA, Arnold M. Schwartz & Associates, Inc., Atlanta, Georgia; and Alvin (Chip) L. Wagner, III, SCRP, SRA, A. L. Wagner Appraisal Group, Inc., Naperville, Illinois.
In undertaking the form revision, the Appraisal Task Force focused on both client and appraiser needs. The goals for the new form were to clarify and ease review and interpretation of the report by clients, as well as to provide appraisers with a more directed approach to facilitate understanding and increase reporting accuracy.
Feedback from both clients and appraisers regarding recommended changes was collected electronically during the spring and summer of 2009, and through focus groups. All data were reviewed and carefully considered before the group embarked on the form revision.
Form revision began in September 2009, during a series of conference calls and continued in October and November during two, two-day meetings. The form was then beta-tested with both appraisers and clients during January 2010. Feedback from the beta-test was reviewed and further changes to the form were made during late winter.
At the same time, the group undertook the revision of the Worldwide ERC® Relocation Appraisal Guide to reflect all the modifications made to the new Worldwide ERC® Summary Appraisal Report.
This article covers only the most significant changes to the form. The reader is advised to review the new Worldwide ERC® Relocation Appraisal Guide for a thorough explanation of the form, as well as step-by-step instructions for its completion.
Page 1
Page 1 of the new report outlines the intended use and purpose of the relocation appraisal, the scope of work, definitions of anticipated sales price and forecasting, and the procedural guidelines in which appraisers completing the report should adhere. In addition, this page includes:
- Assignment Information;
- Salient Facts and Conclusions; and
- Extraordinary Assumption.
This page requires the appraiser to report information about the assignment, as well as identify information about the subject property. In addition, page 1 includes a section that summarizes the salient facts and conclusions of the report. As in the past, this section is completed only after the entire report is finished. It is intended to provide the client with a quick overview of the appraiser’s findings, as well as the value estimate.
The Salient Facts and Conclusions synopsis has been expanded to incorporate more summary information. However, there is one new and important element that has been added: the “assignment marketing period.”
The “assignment marketing period” is the time period on which the appraiser is to base his or her opinion of value. Within the Definition of Anticipated Sales Price under Point 4 (also found on page 1 under the Definitions and Guidelines section) this time period is identified as, “an assignment marketing period, not to exceed 120 days (or as instructed by the client) commencing on the Date of Value Opinion…” This is a change from the 2003 report. Users will note the change from the use of the term “reasonable marketing time” to “assignment marketing period.”
In addition, the “as instructed by the client” verbiage was added to clarify a practice (defining a time period other than “not to exceed 120 days,” such as “not to exceed 90 days” or “not to exceed 180 days”) that always has been acceptable according to instructions in the 2001 Relocation Appraisal Guide. This line item is first reported on page 5 under the Forecasting Analysis sub-section of the Market Trends Analysis and is repeated on page 6 within the Anticipated Sales Price section.
Within the Definition of Anticipated Sales Price sub-section on page 1, two more significant changes have been made (see Figure 1).
Point #1 refers to the subject property’s appearance. The Definition of Anticipated Sales Price requires that the analysis for developing the anticipated sales price, “…reflect the subject property’s appearance “as is” (or as instructed by the client) and is based on its present use as a residential dwelling.” In the previous version of the form, the “or as instructed by the client” aspect of the definition was excluded.
Why has it now been added? Clients often ask appraisers to evaluate homes “as if vacant” versus “as is” for an upcoming assignment marketing period even though the homes usually are occupied at the time of inspection. This change allows for clarification and confirmation that such a practice is acceptable within the Definition of Anticipated Sales Price and that it presents no violation to the Uniformed Standards of Professional Appraisal Practice (USPAP). This line item is first reported on page 3 of the form within the Description of Improvements and also included in the Salient Facts and Conclusions summary on page 1.
One other change is found within the Definition of Anticipated Sales Price under Point 4. This item reads, “an assignment marketing period, not to exceed 120 days (or as instructed by the client) and commencing on the Date of Value Opinion, is allowed for exposure to in the open market. The analysis assumes an adequate time to market the subject property.”
In the past, the “date of appraisal inspection” had been used as the effective date of the appraisal. In the new form, the “date of value opinion” is now the effective date of the appraisal and may or may not be the same as the “date of appraisal inspection.” This change allows the appraiser to consider any pertinent information that becomes available between the “date of appraisal inspection” and “date of value opinion” such as changes to the property’s listing price, the closing of a pending sale, changes to the listing prices of competing properties, and/or changes in market or economic conditions. It is important to note, however, that physical changes in the subject property are not to be considered for this purpose. In fact, this point is addressed within the Extraordinary Assumption, which also is new to the Worldwide ERC® Summary Appraisal Report. The “date of value opinion” is reported on pages 6 and 7 of the form while the “date of appraisal inspection” is only found on page 7.
The new Extraordinary Assumption located within the Definitions and Guidelines section on page 1 (see Figure 2) states, “The Anticipated Sales Price assumes that no physical changes have occurred to the subject property between the Date of Appraisal Inspection and the Date of Value Opinion.” The inclusion of this extraordinary assumption is a USPAP requirement because the effective date of the appraisal (“date of value opinion”) may be different from the “date of appraisal inspection.” It is referred to on pages 6 and 7 of the form as well.
Appraisers and clients should note that no deviations from the definitions or the extraordinary assumption found on page 1 of the report are allowed.
Page 2
The next page of the report asks the appraiser to provide information on the subject property itself along with information about the subject property’s neighborhood and site.
There are two significant changes on this page. The first is the inclusion of information regarding condominiums and cooperatives under the Subject Information section. This information frequently is requested by clients so the report revision presented the perfect opportunity to add it to the form (see Figure 3). It includes information on the complex (i.e., name, number and percent of owner-occupied units, number of floors, whether the complex is complete, marketability issues, and whether the builder/ developer is in control of the HOA).
The second big change is an element within the Neighborhood section that asks the appraiser to define the neighborhood boundaries. The “neighborhood boundaries” define the physical area surrounding the subject property, which has similar characteristics, influences, and complimentary land uses.
Page 3
Page 3 contains the Description of Improvements. Other than minor changes, there are two important additions to bring to your attention.
The first is a new item that asks the appraiser to note if there is evidence of any apparent modifications to the dwelling, such as additions or enclosures. This was added to make clients aware of any modification(s) that may have required a permit or that have financing implications.
The second addition is found in the Recommended Repairs and/or Improvements section. As in the past, if the preparer indicates that there are recommended repairs and/or improvements, they are asked to list them and provide a total estimated cost to cure. In addition, they now are asked to also indicate the priority of those repairs and/or improvements (i.e., low, high, or critical) and comment regarding their effect on the marketability of the subject property. The addition is intended to help the client evaluate not only the costs of the recommended repairs and improvements, but also what the effect would be of choosing to either do or not do the repairs and/or improvements.
For instance, if the repair and/or improvement is minor and unlikely to significantly affect the marketability of the subject property, then the rating should be “low.” Examples of this type of situation might include some minor exterior trim that needs painting or a room with a slightly stained carpet.
If, on the other hand, the repair and/or improvement being recommended is essential to the successful marketing of the subject property, then a rating of “critical” should be selected. Examples of this type of situation might include water damage or extensive deferred maintenance.
Pages 4 and 5
Pages 4 and 5 contain the Market Trends Analysis. It is on these two pages that the most significant changes to the form have been made.
Although the forecasting adjustment is the final step in the Sales Comparison Analysis grid on page 6 of the report, the basis for this adjustment is developed as an extension of the entire market analysis.
The Market Trends Analysis is the foundation for developing a credible opinion of anticipated sales price. This expanded analysis (now being reported on two pages instead of one) focuses on historic, current, and forecasted market trends. It is on these two pages that the appraiser will report his or her analysis of closed sales, current listings, and pending sales that will set the stage for both the “market change” and “forecasting adjustments” asked for on page 6 of the form in the Sales Comparison Analysis grid.
Client and appraiser experience with the form indicated a need for a more guided approach for reporting the analysis; hence, the new form has broken down the Market Trends Analysis into three distinct sections: Historic Trends, Current Factors, and Forecasted Trends. Page 4 contains the Historic Trends section along with the first half of the Current Factors section, which continues onto the first half of page 5. The last half of page 5 contains the Forecasted Trends.
Historic Trends. This section begins by asking the appraiser to define the Market Segment being used in the Market Trends Analysis. The defined market segment details the search parameters used for collecting the data to be analyzed and requires the appraiser to describe the criteria being employed such as geographic, municipal, price range, zip code, subdivision, housing type, school district, and the like. In this section, the appraiser selects the most appropriate market segment based on the buyer profile for the subject market. The market segment may be different from the subject neighborhood addressed on page 2 of the form in that it could include other areas beyond the subject property’s neighborhood in which the potential buyer may look for substitute properties.
Within this Historic Trends sub-section is another new component where the appraiser is asked to complete a Closed Sales Analysis (see Figure 4). This is an important new item and will provide the historical analysis of price trends relevant to developing the “market change adjustment” in the Sales Comparison Analysis on page 6 of the form. In the past, this type of analysis often ended up in an addendum to the form. By incorporating a reporting format for it within the form itself, appraisers and clients are provided a uniform way of developing and reviewing the data. However, this format is not intended to limit the appraiser’s ability to use additional analyses. Along with this Closed Sales Analysis a narrative section has been added for the appraiser to discuss the historic price trends along with the relevancy and reliability of the reported data and any other factors used to determine historic price trends.
Current Factors. Within the Current Factors sub-section on page 4 of the 2010 form, the appraiser also has been provided a new format for reporting data regarding current active listings and pending sales for the defined market segment. In addition, another section was added for reporting the absorption rate and inventory analysis for the market segment. Again, by incorporating a reporting format for these elements within the form itself, appraisers and clients are now presented with a consistent way of developing and reviewing the data. This part of the form also includes a narrative section that asks the appraiser to analyze and discuss the data relevant to the current supply/demand in the subject property’s market segment (see Figure 5).
The Current Factors sub-section of the Market Trends Analysis continues onto the first half of page 5 of the form. The appraiser will find an abbreviated Competing Properties grid for the market segment on this page.
Users of the form will note that the first change to the grid is the combination of the “sale price” and “closing date” line items into one line item called, “last sale date/ price.” Another change users will note is that the former “room count” line item is now simply called “rooms” and includes only bedroom and bath counts; total room count has been removed.
A new addition to the grid is “GLA data source,” which is located directly below the “gross living area” line item. This new item asks the appraiser to report the data source for determining the GLA such as appraiser measurements, public records, assessor records, MLS, and the like.
Another new line item added to this grid is the “comparative rating to subject.” It is on this line that the appraiser summarizes the overall comparison of each competing property to the subject (i.e., superior, similar, inferior). These ratings should demonstrate how a potential buyer would view the competitive listings in relation to the subject property (see Figure 6).
As in the past, directly below the Competing Properties grid are narrative sections the appraiser can use to discuss relevant information related to the competing listings. However, the appraiser also now is asked to answer a couple of questions for each of the competing properties within their discussions:
- Why was the property selected?
- What are the major differences between the competing property and the subject?
The answers to these questions are key in helping the client evaluate the subject property’s competitive position within the marketplace. The responses to these questions also should support the ratings in the grid comparing each property to the subject.
At the end of the Current Factors sub-section on Page 5, the appraiser is to provide a competitive list price range for the subject property necessary to achieve a sale of that property within the assignment marketing period. However, the subject property is sometimes already listed for sale. To evaluate the pricing of the subject, a new question was added directly above the competitive list price range field that asks the appraiser to evaluate whether the subject is “realistically” priced to sell within the assignment marketing period. In addition, the appraiser is asked to indicate which of the properties (including the subject if listed) is positioned to sell first and why. This additional information should support the competitive list price range and provide the client with additional insight regarding the properties.
Forecasted Trends. In the Forecasted Trends sub-section of the Market Trends Analysis, one will find the marketing time information including the “market segment normal marketing time,” the “subject property’s estimated normal marketing time,” and the “assignment marketing period” line items (already discussed under page 1).
There also is a forecasted trends and analysis section that includes line items for “forecasted sales activity” and “forecasted price trend.” What is new in this section is an additional line item for identifying the “pace” of the forecasted price trend—if it is increasing or decreasing, the appraiser is asked to indicate if the trend will continue at the current pace, a decelerated pace, or an accelerated pace.
The appraiser then is asked to discuss in a narrative the overall historic trends and the current factors analyses from pages 4 and 5 of the form along with any additional pertinent data relevant to developing the forecasting adjustment on page 6. They then are to analyze the anticipated trend of market conditions and prices during the subject’s upcoming assignment marketing period considering factors such as the mood of the market, seasonal market trends, economic and employment shifts, demographic trends, buyer profile, and the like. This is similar to the previous form. What’s new is that the appraiser then is asked to indicate, based on this analysis, the type of forecasting adjustment that will be required on page 6 of the form: positive, negative or zero.* This then translates to a specific dollar adjustment on page 6.
Page 6
Page 6 of the form contains the Sales Comparison Analysis and the Anticipated Sales Price sections.
The major objective of this page continues to be to report an analysis of comparable sales in relation to the subject property. This analysis includes making adjustments to the comparables’ sales prices based on the contributory value of features different from the subject property.
New and modified line items in the marketing history portion of the grid include the “original list price,” “original sales-to-list price ratio,” “current and final list price,” “final sales-to-list price ratio,” and “last sale date/price” (see Figure 7).
By providing the original and current/final list price of the subject property (if applicable) and comparables, the appraiser will be able to indicate each one’s sales-to-list-price ratio. A low sales-to-list price ratio indicates that a buyer’s market may exist and that sellers are accepting lower offers. A high sales-to-list price ratio generally reflects a seller’s market and is a key indicator that sellers are negotiating less and buyers are willing to pay closer to full asking price. The original sales-to-list price ratio may indicate whether a property was initially over priced.
“Financing type” is a new line item. To complete this line item, appraisers are asked to enter the type of financing (conventional, FHA, VA, cash, seller, etc.). In addition, “data verification sources” and “concessions” are line items that were modified from the 2003 form and replace the “data source” and “sales and/or financing concessions” line items. These items either were added or modified to allow for enhanced data reporting.
As in the Competing Properties section on page 5, the “rooms” line item has been changed on page 6 as well to include only bedroom and bath counts; total room count has been removed.
Instructional footnotes for the preparer also have been added to the grid regarding the “market change adjustment” and the “forecasting adjustment.”
Finally, the Anticipated Sales Price section has been revised and includes not only the “anticipated sales price” and “date of value opinion,” but also repeats pertinent information pulled from other sections of the report. Most importantly, information about the subject property’s current list price and competitive list price range are repeated and allow the appraiser a final opportunity to review his or her value opinion in comparison to the subject property’s actual list price and competitive list price range (see Figure 8).
Page 7
This page also has changed and has been retitled: Statement of Limiting Conditions, Extraordinary Assumption, and Appraiser Certification. Three significant changes/ additions have been made to this page.
The first is a modification to Point #10 under the Contingent and Limiting Conditions sub-section. On the previous version of the form, this point used to indicate that the effective date of the appraisal was contemporaneous with the date of the appraisal. Now that the “date of value opinion” is the effective date and may differ from the “date of appraisal inspection,” Point #10 has been revised to say, “for the purpose of this appraisal, the effective date of the appraisal is the Date of Value Opinion. This allows the appraiser to consider pertinent information available between the Date of Appraisal Inspection and the Date of Value Opinion.”
The second change is that the extraordinary assumption found on page 1 of the report has been repeated on page 7 to emphasize that the anticipated sales price assumes no physical changes have occurred between the “date of value opinion” and the “date of appraisal inspection.” It should be noted again that no deviation from the extraordinary assumption is allowed on the Worldwide ERC® Summary Appraisal Report.
Last, a new sub-section has been added, called “Additional Contingent and Limiting Conditions, Certifications and Comments.” This new narrative field allows the appraiser to list any additional limiting conditions, additional certifications required by state licensing, and/or membership in professional appraisal organizations. It also allows the appraiser to address any other USPAP requirements.
Conclusion
The 2010 redesign of the form reflects both client and appraiser recommendations and an intense year’s worth of work by the Appraisal Task Force.
There were items suggested that the Appraisal Task Force considered but determined did not warrant inclusion in the form revision. Most important, the following two items were not included:
- the option of an opinion of value that excluded forecasting; and
- the inclusion of adjustments in the Competing Properties grid.
Regarding the first item, based on the Definition of Anticipated Sales Price, the value opinion generated by the Worldwide ERC® Summary Appraisal Report (anticipated sales price) requires forecasting. It is not an option. This forecasting component is one of the defining features of anticipated sales price and the relocation appraisal. Through years of use and development, anticipated sales price has been established as the appropriate opinion of value for relocation appraisals. In addition, the Worldwide ERC® definition of anticipated sales price is recognized by the Appraisal Foundation (USPAP Advisory Opinion 22). A value opinion developed in the Worldwide ERC® Summary Appraisal Report that does not include forecasting is, by definition, not anticipated sales price and, therefore, inappropriate to use within the context of a relocation appraisal.
The Appraisal Task Force also discussed whether to add adjustments to the listings in the Competing Properties grid on page 5 of the report. Similar to the previous task force that completed the 2001 revision, the group reconfirmed its position that including adjustments in the Competing Properties grid continues to be inappropriate. The reason is that while sometimes useful in demonstrating the principle of substitution (meaning that a typical potential buyer of the subject property would pay no more than the cost of acquiring and equally desirable substitute property), the adjustment of listings often produces inconclusive results because of the difficulties in determining whether the listings are properly priced. As such, adjustments to the competing properties do not produce credible results in a consistent enough manner to warrant inclusion in the report.
To learn more about the Worldwide ERC® Summary Appraisal Report and to purchase your own copy of the 2010 edition of the Worldwide ERC® Relocation Appraisal Guide, visit our website at www.WorldwideERC.org.
* The Appraisal Task Force has made improvements to the Summary Appraisal Report since the publication of this article in the print edition of MOBILITY. To reflect this final version, wording in this article has been updated.
Jan Hatfield-Goldman is vice president, research and education for Worldwide ERC®, Arlington, Virginia. She can be reached at +1 703 842 3415 or jhatfield-goldman@worldwideerc.org.