Setbacks are generally mandated by fire codes to provide access around the building or to prevent a fire from spreading to adjacent properties. If the improvements are not legal and or a conforming use under the zoning and building codes, you must discuss the impact on marketability and value.

Highest & Best Use

FNMA's Guidelines require the appraiser to consider the present residential use as "the highest and best use" provided the existing improvements contribute to the total market value of the subject property and or until such time that development of a new building and use on the subject property would more than offset the cost of demolition and new construction.

USPAP Standard 2-2 requires the appraiser to "summarize the support and rationale" for the opinion of highest and best use. Suppose the subject property is located on a busy street in a transitional area, where some of the adjacent properties are converting to office or professional uses. Under the traditional tests, the subject may be "maximally productive" if it were converted to a professional use, however the existing residential use still may be viable per FNMA and Mortgage Lending Guidelines.

The key is to disclose that while a "theoretical" better use may exist, the current use still contributes to the overall value of the property and that (under supplemental guidelines) a "hypothetical condition" is being employed for the "purposes of analysis".

Adverse Conditions & External Factors

FNMA removed the word "apparent" from several areas of the previous URAR. As such, will statements by the appraiser like "no apparent adverse conditions, easements, etc." shield the appraiser in litigation? I would suggest you define what adverse is and or what was considered.

Condition of the Subject Property

Often, we see the words "rehabbed" or "remodeled" noted in the comments area. These terms have various interpretations and are not interchangeable, so be careful in their use.

• Rehabilitation or Renovation - is the process of restoring or improving a structure to satisfactory condition.
• Remodeling - change the plan, form or style to correct functional or economic deficiencies.

Livability, Soundness or Structural Integrity

How qualified must you be to comment on these issues? Making statements such as "the appraiser is not an expert on building construction, code violations, etc." may not safeguard you from liability if construction defects or code violations are apparent and if you should have recommended or required the client to seek the services of a qualified expert.

In "the Appraisal of Real Estate" (perhaps the most recognized published authority on real estate appraisal) in the "Building Description Chapter, you will find the following statements:

• "To describe a building completely, an appraiser should be familiar with the codes in the area and determine whether a building complies with applicable codes".
• "A complete building description includes information about the details and condition of a building's exterior, interior and mechanical systems".
• "When violations exist, the appraiser estimates the cost to correct the problem and judges the effect on value".
• "An appraiser must observe any structural problems in the building and evaluate their effect on the property's value. If the problems can be corrected, the cost of correction is estimated".

Armed with a copy of The Appraisal of Real Estate (and other similar publications on appraising), what standards might a court or commission hold you to? Will you be able to pull a "rabbit out of your hat" or at the very least point to one in your addendum?

In the next segment of Outside the Boxes, we'll continue with part 2 of Overlooked and Under-Reported.

AUTHOR:  Patrick Egger is a Certified General Appraiser located in Las Vegas, NV. He teaches continuing education classes on the housing market, appraisal issues for real estate agents and appraisers. He can be reached at lvreqa@cox.net  Look for the new Outside The Boxes category for a collection of Patrick's articles on Appraisal Scoop!