Is it Form vs. Confusion or Form vs. Function?
By Charlie W. Elliott, Jr., MAI, SRA

Most of us having been in the appraisal profession for a few years can remember when the lending industry required only a couple or three “old stand by” appraisal products or formats. These included the following:

Fannie Mae Form: The number on this depended upon the year.
Drive By Form: This was considered less than an appraisal by many.
Commercial Narrative Format: This thick and expensive complete appraisal was usually prepared by an MAI.

That was about it, at a time when there was less confusion and when function without question dictated form. To make it simpler the commercial people did not do either of the residential form appraisals. The designated residential appraisals in many cases considered it below their dignity to do a drive by so they only did one type of appraisal. That leaves the drive by, which was usually for sub prime loans to the least experienced appraiser. That’s because the lender did not pay as much as for the Fanny Mae form, and the less experienced appraiser was at the bottom of the pecking order. Given the above, most appraisers only had to deal with one appraisal format most of the time.

To quote our old friend Yogi Berra, “You can observe a lot by just watching.” If you haven’t been watching, things have changed lately. Today, the appraisal profession has become one of specialties. There seems to be a form for almost everything thing one can think of. A recent survey of appraisal company service menus showed many companies have 20, 30, and even 40 and more different products to offer.

Why on earth do we need so many more appraisal formats than we did in the past? There are likely varying opinions on this. Since I am the author, I will take the liberty to venture the following answer to this question.

Everything is more complicated today. As reported of the military, the real estate industry has forms for everything including one for completing a trip to the necessary room. Perhaps this only represents a maturing of an industry, which in its earlier years relied more on one-size-fits-all loans. There is fierce competition between lending companies for loans, causing lenders to look for new and better ways to curry favor from borrowers, thus sometimes requiring different appraisal formats. Government regulations dictate additional forms for the appraisal of different types of property while the credit scoring of the borrower can determine what type of appraisal form is required. The industry in one breath moves to reduce the cost and time required to produce an appraisal by allowing drive by limited appraisals, and in another requires FHA addendums requiring five additional pages of paperwork. There are desktop appraisal review forms, field review appraisal forms and convertible desk top/field review appraisal forms. This does not begin to address the many “near appraisal formats” such as BPO forms or broker price opinion forms and AVM formats or automated valuation models. The savings-and-loan debacle of the ‘80s generated an outcry for all appraisers to become state certified which has become a reality. Now that we have in excess of 80,000 state-certified appraisers, many lenders when possible are opting for the use of BPOs and AVMs, which may be completed by, and in some cases, are required to be completed, by people without appraisal certifications.

Does all of this make any sense? Probably not, or at least in a macro sense. But in much the same way as we see our health care and educational systems change we are seeing it in our industry. Remember the old saying, “Whatever goes around comes around”? If our educational system complains about poorly educated students, low paid teachers and poor test scores one day and strict policies, high education cost and too much testing the next, is this progress? Is having a multitude of appraisal forms for all of the above reasons any different? Perhaps in our society, all of this hemming and hawing is the price we must pay to represent the interest of all concerned and still get the job done. In the midst of all of this confusion, one has to wonder whether people ordering appraisals are aware of the many choices that are available and when which form is appropriate for which task. In an attempt to address this question listed below are a few of the typical appraisal forms which we as appraisers find most practical for the general and everyday needs of the lender and a brief description of its use.

• FNMA 1004 (Uniform Residential Appraisal Report or Fannie Mae Standard Form): This form is considered the most complete and thorough format for producing a single family appraisal short of preparing a narrative appraisal which is cost and time prohibitive for most lending needs. It is usually prepared with complete interior inspection and subject as well as comparable photographs.

• FNMA 1073 (Individual Condominium / Planned Unit Development Form): Condominiums and townhouses are usually appraised on this form. It is usually prepared with complete interior inspection and subject as well as comparable photographs.

• FNMA 1025 (Small Residential Income Property Report): This is for small multifamily one-to-four unit, and sometimes larger, residential-income-producing properties are usually appraised on this form. It is usually prepared with complete interior inspection and subject as well as comparable photographs.

• FNMA 2055 (Quantitative Analysis Report or Limited Drive By Report): This is a limited appraisal report usually performed by exterior inspection only. It should contain subject and may contain comparable photographs. It is usually used when costs and time constraints are an issue.

• FNMA 2075 (Exterior Property Inspection Report): This is a property inspection not an appraisal form. It is not designed to provide a value, however, it does contain a description of the property and should contain subject photographs. It is usually used when costs and time constraints are an issue and when a value is not required.

• FNMA 2006 (Desk Review/Field Review Combination): This form can be used for a desk review or a field review of a previously prepared appraisal. It may be converted from a desk review to a field review if it is determined that the appraisal is flawed and if a value is required of the reviewer.

• Generic “Land -Vacant Land” Form: This form is used to appraise most any type of vacant land. It can be used for small lots or large acreage, and residential or commercial applications, when only the sales comparison approach is required. It is used primarily when time and cost constraints are an issue.

While the above does not represent nearly the entire plethora of appraisal forms available today, it is presented in an effort to simplify the process for most appraisal orders. In keeping with the theory “wherever possible form should be dictated by function as opposed to confusion” some may find it a helpful reference.

Charlie W. Elliott, Jr., MAI, SRA, is President of ELLIOTT® & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889 or at charlie@elliottco.com or through the company’s Web site at www.appraisalsanywhere.com.