From the appraiser's perspective: Appraisal formsCharlie W. Elliott Jr., MAI, SRAappraisals
In the practice of appraising real properties for lenders, one
of the most misunderstood issues that comes to mind has to do with
which format or form an appraiser should use in connection with a
given loan and/or property. As is the case in addressing many
subjects that seem complicated but really are not (if completely
understood), looking at the issue from a distance usually provides
more satisfaction than getting too close to it. Let's take a look
from a distance.
On the subject of appraisal format, most, if not all, questions
could and should be addressed prior to the appraiser quoting a fee,
promising a scheduled delivery time or accepting an assignment.
First, it should be considered that the appraiser is bound by the
Uniform Standards of Professional Appraisal Practice (USPAP). These
appraisal standards were developed by the Appraisal Standards Board
(ASB). They apply to all appraisals performed by an appraiser and
not just those performed for a lender in connection with a loan.
The ASB does not address forms and it is up to the appraiser to
determine which format to use. Standards leaves this issue up to
the appraiser; however, the appraiser is duty-bound to present a
report in a format that addresses the client's purpose, the report
is not misleading and that the appraiser subscribes to and
discloses the scope of the work being performed.
As a practical matter, formats for appraisals involving loans
are generally the concern of the secondary market purchasers, such
as Fannie Mae. They will
dictate the format and, provided it meets standards, the appraiser
will use the selected format if he wants to do this type of work.
Also, it is important to understand that appraisers perform
services for others outside the home lending field and that
appraisers may use many different types of formats when preparing
different appraisals, depending upon the purpose.
There are many different formats of appraisals, including those
most commonly used by appraisers when appraising properties for
loans. These fall into two basic categories: form appraisals and
narrative appraisals. There are various breakdowns of these
formats, particularly in the forms - by far the most popular
category for residential properties. Commercial properties are
usually appraised in narrative format.
While Fannie Mae is the most popular form series, there are many
other forms that appraisers can and do use. In the lending
industry, the reason that the Fannie Mae forms have been so widely
used is that Freddie Mac
also uses the Fannie forms, and historically, between the two, most
loans sold on the secondary market have been sold to them. Both
require that you use their forms if you sell them your loans.
According to the weekly newsletter Inside Mortgage Finance, the
combined market share of these two government-sponsored enterprises
(GSEs) peaked at 63.9 percent in 1999. That figure is now below 40
percent, which represents a switch. In the future, we may not see
as many appraisals on the Fannie forms. I think it fair to say that
the GSEs, including the Federal
Housing Administration, which has also adopted the Fannie form
series, are losing market share to the private sector. This may
explain some of the discussion in the news about proposed
legislation concerning the GSEs and what they intend to do to
preserve their share of the market. Given this change, these
bureaucratic entities, no doubt, will have less influence in the
future on issues such as appraisal forms. The Appraisal
Institute (AI) has developed a new residential appraisal form,
which we may also see as we move forward. Given that AI is the
largest and most influential trade organization for appraisers,
their form could gain acceptance in the near future.
Be that as it may, today most appraisals performed for lending
purposes are made on Fannie Mae forms. What a lender decides to do
with an appraisal determines the format or form, and due to the
popularity of the Fannie Mae forms, most lenders have adopted them
as a matter of convenience. When a lender makes a loan, knowing the
appraisal format requirements of the buyer of the loan is the key.
Given the current changes in the players in the secondary market,
one cannot and should not automatically assume that the Fannie Mae
forms will be required or that they are even acceptable as we move
forward. For now, however, they seem to be dominant. Even those
investors buying loans in the private sector seem to consider the
Fannie forms to be the standard and accept it. Some loans are held
by lenders as an in-house loan and no third party is involved. On
these loans we may see change quicker, since they do not have to
follow Fannie's lead on forms.
Having discussed the foundation or root as to where the power
lies in appraisal format determination, it is appropriate to
address some of the common questions that are currently experienced
with residential appraisal forms.
Q. What form do I use for an on-frame modular home, the
FNMA 1004 for conventional homes or the FNMA 1004C designed for
A. This depends. Fannie has stated that even though a
modular home on a steel frame is built to state building code, it
is considered a manufactured home and that it will only accept
appraisals for on-frame modulars on a 1004C form. It will accept
off-frame modulars on a FNMA 1004 form. If the on-frame modular
loan is to be sold to someone other than Fannie, it may be OK on
the FNMA 1004 form, depending upon its policy, but not for
Q. Can I have my appraiser do a drive-by exterior-only
inspection appraisal on a FNMA 1004 form?
A. No, the new Fannie forms do not permit this. The
appropriate exterior-only inspection form for a residential
property is a FNMA 1055.
Q. Is there an appropriate form to use for a drive-by
exterior-only inspection on the appraisal of a condominium?
A. Yes, the Fannie provides the new form FNMA 1075 for
Q. Does Fannie provide a form for construction-draw
A. No, it only provides final construction-inspection
report form FNMA 1044D, which is for completed houses. Each lender
or appraisal management company is responsible for its own forms on
In summary, it is important for the lender and the appraiser to
determine the proper form for each assignment prior to the
preparation of the appraisal. The appraiser will not always know
where the appraisal is going, and therefore may not know what form
to use unless instructed by the lender client.
Charlie W. Elliott Jr., MAI, SRA is president of Elliott
& Company Appraisers, a national real estate appraisal company.
He can be reached at (800) 854-5889, [email protected]
through the companys Web site at www.appraisalsanywhere.com.
Previous columns he has written for The Mortgage Press can
be seen on the Elliott & Company Web site.