New Appraisal vs. Appraisal Update: Which Do You Need?
Categories: Commercial Appraisals, Real Estate Appraisal
Suppose you paid for an appraisal when you refinanced your property a couple of years ago. Now, your real estate taxes have taken a big jump. The question then becomes, can you use that previous appraisal to apply for a tax abatement? Or, perhaps, you work for a financial institution that is reviewing a property loan it made five years ago. Can you ask the original appraiser to just update that first appraisal? Or, in either case, can you ask another appraiser to update the original appraisal? Licensed and certified Massachusetts appraisers work under established practice standards. They know that several considerations dictate whether they can apply previous appraisals for different uses.
Scope of Work in an Appraisal
Appraisers who are licensed or certified in Massachusetts must prepare their appraisal assignments in compliance with the Uniform Standards of Appraisal Practice (USPAP). USPAP considers an appraisal assignment to be a valuation service provided by appraiser as the result of an agreement between the appraiser and a client. A client is the party who engages, by employment or contract, the appraiser in a specific assignment. Note that the client isn’t necessarily the person who pays for the appraisal service.
When the appraiser accepts an assignment, he must identify not only the client but those additional parties who will also be intended users of the appraisal results. The appraiser must also confirm with the client the appraisal’s intended use. Intended use guides the appraiser in knowing the scope of work needed to complete the assignment. The scope of work includes the necessary research and analysis to serve the client’s intended use, as well as the definition of value, the effective date of the appraiser’s conclusions, and any assignment conditions required for the client’s intended use. Those conditions include laws and regulatory requirements.
Differences in Intended Use and Appraisal Date
Different clients rely on different definitions of value. For example, an appraisal for real estate taxation purposes uses the definition of “full and fair cash market value,” as required by Massachusetts state law. But an appraisal of a house for an FHA-guaranteed loan uses the definition of “market value,” as required by required by HUD. These differences affect an appraisal’s scope of work, in response to its intended use. An assessor sees value differently than does a mortgage lender.
If the second intended user is different from the original user, a new appraisal is needed, even if the date of value is the same. Assessors and mortgage lenders have different intended uses for appraisals; an appraisal for one wouldn’t satisfy the needs of the other.
An appraisal reflects market conditions as of one specific date. Consequently, an appraisal wouldn’t conform to its intended use if it were applied to a different date. Changed market conditions affect not only the demand and prices paid for a property; they might even suggest a different highest and best use. In order to be valid for a different date, a new appraisal would be necessary. To a qualified appraiser, a value opinion as of a different date is still a new appraisal, even if it is called an “update.”
How a Previous Appraisal Can Help
There’s still good news if you have an earlier appraisal of your property. If the original appraisal’s descriptions are accurate, it could save significant time in preparing the second appraisal, resulting in a lower appraisal fee for you. Some of the first appraisal’s analytical content, such as comparable sales, might also be useful in the second appraisal.
Assuming all the information and analysis in the first appraisal is still credible, the second appraisal can be reported briefly, with the original appraisal attached. Or if the appraiser specifically identifies the subject property, client and other intended users, appraiser and date of value in a second appraisal report, they can include information from the original report by reference.
When an appraiser signs their name to a value opinion, they’re taking responsibility for the entire analysis and report. It would be risky for them to sign a new appraisal that depended on someone else’s original work. So, this reliance on an earlier appraisal is most reliable when both appraisers work for the same firm and intended users.
Getting an Appraisal Update or New Report
An appraisal’s intended use affects the kind and amount of work needed to complete it. When intended use changes, you likely need a new appraisal. When a later date of value would affect market conditions and useful comparable sale data, you also probably need a new appraisal. Every time an appraiser gives an opinion of value, that is an appraisal—regardless of whether you call it an update, a re-certification, or a new appraisal. But a prior appraisal can reduce the scope of work for a new appraisal if the appraiser can use information from that earlier appraisal, either by reference or by attachment. Competent and experienced appraisers can appropriately use earlier appraisals to serve your current needs and deliver the economical solution to you.
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