Looking for ways to grow your appraisal business? Non lender appraisal work offers an opportunity to diversify your client list and expand your workload. But before you dive in head first, you should know the key differences between mortgage lending assignments vs. non lending assignments such as divorce and estate appraisals. Here are five tips for tackling non lender appraisal work.
1. Don’t expect a lengthy engagement letter
Don’t expect to see a lengthy order form or engagement letter from your client setting out the expectations, assignment conditions, and things like this that are common to lending assignments. Divorce and estate clients are not going to be walking you through what you need to do, what you need to write about, what you need to describe and summarize in your report, what they don’t want. In divorce, estate, and other types of private appraisal assignments, the client is expecting you to be the expert—that’s why they’re hiring you for this appraisal assignment.
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2. Don’t use pre-printed appraisal forms
For non lender appraisal work, such as divorce or estate work, avoid using forms that have certain pre-printed items addressing mortgage lending assignments, like those found on the Fannie Mae forms. Such pre-printed statements may not apply to your non lending assignment. Therefore, they could result in a misleading report. For example, it would be totally inappropriate to use a pre-printed mortgage lending form to report a divorce appraisal. To avoid being charged with USPAP violations, use a general purpose appraisal form that allows you to customize the assignment elements.
3. Provide a detailed scope of work
The pre-printed scope of work disclosure is extremely brief on the lending forms. With non lender appraisal work, it’s a good idea to type up your own scope of work items and provide a very detailed scope of work in your report. You can lay out exactly what photographs you’re taking, what photographs you’re not taking, what type of observations and inspections you are doing, what types you aren’t doing, what you couldn’t access and what you could access, and, of course, the analyses you undertook (e.g., highest and best use analysis, market analysis) and the approach or approaches to value you use.
4. Double check your definition of value
Unlike most lending assignments, you might not be using a definition of market value in your non lending appraisal assignments. For any assignments that are relating to IRS, like with inheritance taxes or gifting appraisals for which the IRS is one of the intended users, you are going to have to include a definition of fair market value. It sounds similar, but the definitions are slightly different.
Some appraisers might say, “Well, this is a technicality that doesn’t necessarily affect the value conclusion I come to.” That may be the case in some assignments, but the fact remains that USPAP requires you to cite the correct type and definition of value that you’re using. In some cases, that’s going to be the IRS definition of fair market value. In other non lending appraisal situations, you may need to use different types and/or definitions of value.
5. It’s OK to use dated sales
You can use dated sales (even those that are significantly dated) in divorce and estate appraisals—as long as you have some strong reasoning and some meaningful market analysis to back it up. If you use a sale that is 3 or 4 years old in lending appraisals, the lender is not going to like it. In private appraisals, on the other hand, it’s OK to use older sales or sales that are located some distance from the subject property. But be careful. When selecting the comparables, make sure you back it up with sound reasoning.
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Are you currently seeking non lender appraisal work? Check out our guide: How to Market Your Appraisal Services for Divorce and Estate Work.