Aug 30, 2017 - 09:37 AM
Numerous questions and comments have been presented to the Appraisal Standards Board (ASB) regarding the Fannie Mae/Freddie Mac appraisal report forms that have a revision date of November 2005. Many of the questions, which are summarized and presented below, are related to Item #23 in the appraiser’s certification on report Fannie Mae Form 1004/Freddie Mac Form 70, which is titled, the Uniform Residential Appraisal Report (URAR). (The statement in item #23 on Form 1004/Form 70 also appears in the other Fannie Mae/Freddie Mac forms.) The first question is included because the answer is central to the issue raised about appraiser’s certification item #23.
Question: (1.) What is meant by the term intended user in USPAP?
Response: Intended user is defined in USPAP as:
the client and any other party as identified, by name or type, as users of the appraisal, or appraisal review report by the appraiser on the basis of communication with the client at the time of the assignment.
Although the client provides information to the appraiser regarding the intended users, it is the appraiser who is responsible for specifying the parties he or she is identifying as intended users.
Knowing the intended users is important because USPAP requires that reports contain sufficient information to allow intended users to understand the report. Without clear knowledge of the intended users in an assignment, an appraiser cannot be certain that the report content is appropriate. Some intended users will require more information than others in order to facilitate understanding.
Furthermore, identification of the intended users is important in understanding the intended use or uses of the appraisal; different intended users may have different intended uses for the appraisal.
Question: (2.) I have studied the Fannie Mae Form 1004/Freddie Mac Form 70. On that form, the lender/client is identified as the intended user. However, item #23 in the appraiser’s certification states:
“The borrower, another lender at the request of the borrower, the mortgagee or its successors and assigns, mortgage insurers, government sponsored enterprises, and other secondary market participants may rely on this appraisal report as part of any mortgage finance transaction that involves any one or more of these parties.”
I am concerned that item #23 is not clear, and I wonder if the parties listed in Item #23 could interpret it to mean that they are also intended users. To be in compliance with USPAP, what should I do about this item in the appraiser’s certification?
Response: USPAP requires that each written appraisal report must:
…clearly and accurately set forth the appraisal in a manner that will not be misleading.
Part of satisfying this requirement is clarifying which parties are intended users. USPAP requires the appraiser to identify the intended user(s) and to state in the report who the intended users are. (See the definition of intended user, Standards Rule 1-2(a), and Standards Rule 2-2(a)(i).)
The revised Fannie Mae Form 1004/Freddie Mac Form 70 clearly states that the lender/client is the intended user. However, the language in the appraiser’s certification item #23 confuses the matter.
Therefore, in order to clearly and accurately set forth the appraisal in a manner that is not misleading, the revised Fannie Mae Form 1004/Freddie Mac Form 70, and other Fannie Mae/Freddie Mac forms for other real property categories, require supplementation to clarify which parties the appraiser is identifying as intended users. As stated in USPAP:
An appraiser must supplement a report form, when necessary, to ensure that any intended user of the appraisal is not misled…
Part of not misleading the intended users is ensuring that they know who they are.
Question: (3.) Does the ASB consider item #23 in the appraiser’s certification on report the Fannie Mae Form 1004/Freddie Mac Form 70 confusing?
Response: The statement that the parties listed “…may rely on this appraisal report as part of any mortgage finance transaction that involves any one or more of these parties” is subject to various interpretations.
First, from a practical standpoint, there is little distinction between parties who use the report and parties who rely on the report. It is difficult to determine the difference between those parties given permission to rely on the appraisal report (from the Fannie Mae/Freddie Mac report forms) and those parties identified as users of the appraisal report (from the USPAP definition of intended users).
Another matter of confusion is the meaning of the word may in the phrase “may rely on.” One interpretation could be that the appraiser is granting permission. This permission for the parties to rely on the report suggests that they are intended users. Another interpretation could be that the appraiser is simply acknowledging the possibility that another party might choose to rely on the report, even if that party is not an intended user. This possibility has always existed; the appraiser cannot control to whom the client provides copies of the report.
Question: (4.) What should an appraiser do if the parties listed in appraiser’s certification item #23 are determined by the appraiser to be intended users? What if the appraiser determines they are not intended users?
Response: First, if the appraiser intends any of the parties listed in appraiser’s certification item #23 to be intended users, the report must state that fact, and the appraiser must comply with the USPAP requirements associated with these other intended users. For example, further supplementation might be necessary to comply with Standards Rule 2-1(b), requiring that the appraisal report must:
…contain sufficient information to enable the intended users of the appraisal to understand the report properly…
Conversely, if the appraiser does not intend the parties listed in appraiser’s certification item #23 to be intended users, the report must be supplemented to clearly explain this. For example, as indicated in USPAP Advisory Opinion 36, Identification and Disclosure of Client, Intended Use and Intended Users, a statement similar to the following may be appropriate:
This report is intended for use only by (identify the client and any other intended users). Use of this report by others is not intended by the appraiser.
Question: (5.) But how can I supplement the Fannie Mae/Freddie Mac appraisal report forms? Fannie Mae and Freddie Mac prohibit supplementing the certification regarding anything material.
Response: The ASB cannot comment on Fannie Mae or Freddie Mac policies. However, USPAP requires that the appraiser supplement an appraisal report form if the form is not adequate. As stated in STANDARD 2-2 of USPAP:
An appraiser must supplement a report form, when necessary, to ensure that any intended user of the appraisal is not misled and that the report complies with the applicable content requirements set forth in this Standards Rule. (Bold added for emphasis)
Each assignment is different, and no form could cover all USPAP requirements for all assignments. Appraisal report forms are simply tools to assist in organizing the reporting of assignment results.
It is the responsibility of the appraiser to properly develop an appraisal and to properly report the assignment results. A template or form may or may not adequately report the assignment results.