Appraisal Forms
By Charlie Elliott, MAI, SRA

In the practice of appraising real properties for lenders, one of the most misunderstood issues that come 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 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 or she 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 beet 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 Entities (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 FHA, 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 the AI is the largest and most influential trade organization for appraisers, their form could gain acceptance in the near future.

Be all 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 manufactured homes?

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 FNMA1004 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 Fannie.

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 new Fannie forms provide form FNMA 1075 for this purpose.

Q. Does Fannie provide a form for construction-draw inspection reports?

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 draw inspections.

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.