January 7, 2016 – Below is a question I received followed by my reply. Happy New Year to all.
George – Hope your holidays were great and 2015 is finishing off strong. I was hoping to get your opinion on an item below.
It’s just how non-realty items are reported in the appraisal report. No change at all in the new USPAP – I’ve just been inconsistent in how I treat it. Sometimes I show a $ allocation, sometimes I don’t and just say it is included in the value and has a positive effect on value. Either way, I’m always clear on whether non-real property items are in the value or not.
So just trying to nail down exactly what is right or what USPAP expects. I’ve seen personal property treated many different ways and some appraisers still don’t say anything about it… USPAP doesn’t say much on the topic.
Thanks for any input!
As stated in Standards Rule 1-4, part (G): When personal property, trade fixtures, or intangible items are included in the appraisal, the appraiser must analyze the effect on value of such non-real property items.
My question is what is the extent of “analyzing the effect on value?” For instance, in a multifamily property with appliances necessary for continued operation, do we need to actually state the estimated amount that the appliances contribute to value or is it sufficient to note that the market value includes all personal property items which contribute to the market value? If the value needs to be broken down and allocated between real property and non-real property items – can the allocation be stated once near the beginning of the appraisal report or does the allocation have to be every place where there is a market value stated?
Just curious because I have heard several versions and I didn’t really see any Advisory Opinions on the topic.
============ MY REPLY ============================
Your question only exists because the ASB and AI and others won’t specifically address the various differences between USPAP and FIRREA.
The bottomline is USPAP does NOT require a value on the FF&E. Albeit, it would probably help all clients to know such. More info cannot hurt.
However, FIRREA DOES require values be allocated to FF&E and Business/Intangible Assets so that the appraiser provides the ONLY required value per FIRREA – Market Value As Is of REAL ESTATE ONLY.
So, when doing an appraisal for a Federally-Related Transaction, you MUST provide a value for the non-realty items. It has been that way since 1990/1991.
Where you place it….well that is up to you. But, technically, when you state Market Value As Is (as well as Upon Completion and Upon Stabilization) it should just be the Real Estate Only number.
However, 99%+ of appraisers state Market Value INCLUSIVE of FF&E and Biz Value and then have some kind of footnote or wording in parentheses saying ‘the above includes $1,400 of FF&E’. Something like that. They let the Bank do the math to get to the real estate only number.
So, you can do it that way and you will be in line with your peers. As I always tell appraisers though, if you want to stand out from the crowd provide what your client really needs, and in this case, state MV without the FF&E and Biz Value and then let the footnote say how much the FF&E and Biz Values are worth.
The reason banks need the Real Estate Only number is it is Federal law (FDICIA of 1991) that LTV must (!) be calculated on this number only. Any MV number that includes FF&E and/or Biz Value is worthless to a bank!
Now, for non-Bank clients you can forget all of the above. However, I still recommend providing the separate values.
I hope this helps.