Relocation Appraisals differ significantly from the typical mortgage related appraisal in several regards. Differences include but are not limited to: Reporting Format; Intended Use; and, Purpose.
The Reporting Format for the typical mortgage related appraisal is the two-page Fannie Mae URAR 1004 report which is standard for the industry. The format for the relocation appraisal is the seven-page ERC Summary Appraisal Report which covers many of the same elements as the Fannie Mae 1004 but requires substantially more detailed analysis and narrative commentary to complete properly.
The Intended Use of the Fannie Mae 1004 is to assist the lender and their underwriters in evaluating the risk associated with the property being appraised for mortgage or bank loan purposes. The use of the ERC Appraisal is to assist an employer with the task of facilitating the relocation or moving of an employee from one location to another.
The Purpose of a mortgage related appraisal is to develop an opinion of the market value of the subject property while the purpose for a relocation appraisal is to develop an opinion of the anticipated sales price of the subject property.
One of the most significant differences between relocation and mortgage related appraisals is the Definition of Value each subscribes to. As per the Fannie Mae 2005 URAR 1004B form the definition of the desired Market Value is:
“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale of a specified date and the passing of title from seller to buyer under conditions whereby:
- Buyer and seller are typically motivated;
- Both parties are well-informed or well-advised, and each acting in what he considers his own best interest;
- A reasonable time is allowed for exposure to the open market;
- Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
- The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.”
As per the ERC Summary Appraisal Report 2010 the definition of the desired Anticipated Sales Price is:
“The price at which a property is anticipated to sell in a competitive and open market, assuming an arms-length transaction whereby:
- The analysis reflects the subject property’s appearance “as is” (or instructed by the client) and is based on its present use as a residential dwelling;
- Both buyer and seller are typically motivated: both parties are well informed or well-advised and acting in what they consider their best interests;
- Payment is made in cash or its equivalent;
- An assignment marketing period, not to exceed 120 days (or instructed by the client) and commencing on the Date of Value Opinion, is allowed for exposure in the open market. The analysis assumes an adequate effort to market the subject property; and
- Forecasting must be applied to reflect the anticipated trend of market conditions and prices during the subject property’s prospective marketing period.”
Inherent between these two different definitions of value is that the mortgage related appraisal tends to be backward looking or based primarily on past historical information with the relocation appraisal tending to be forward looking or based on future expectations. In an active and efficient market these two appraisals could very well render a supportable opinion of value that is the same. However, as is the case of rural and less efficient markets these two appraisals and their ultimate opinions of value could produce significantly different and as equally well supported opinions of value that may be literally thousands of dollars apart.
The Marketing Period is one of the most crucial elements in the possible variation in the opinions of value rendered given these two definitions of value. This especially holds true in those markets whose typical marketing times are more than the relocation anticipated sales time of generally 120 days or less. Not only does the appraiser have to consider the forecasting adjustment when analyzing for the future anticipated marketing time for relocation appraisals; but must also have to consider the discount necessary, if any, to effect a sale of a property if only allow to be marketed for a time shortened period in relation to the typical marketing time for the area.
As professional appraisers we have the knowledge to distinguish between these different values and how to properly develop supportable opinions based on the requisite needs and desires of the relocation client.