What we hope to accomplish today includes: Provide guidance on how to perform those roles and responsibilities Provide HUD with more complete

Valuation and Market Study Training


Trainers

Sheri Cruise Davis, Deputy Chief UW, Highland Commercial Mtg.Roy Williams, Deputy Chief UW, Wells Fargo Multifamily Capital

Bob Lefenfeld, Managing Principal, Real Property Research Group, Inc.

Tad Scepaniak, Real Property Research Group, Inc.Kevin Lynch, Cushman & Wakefield

Nelson Pratt, Hodges & Pratt Company, PCDan Schneider, MAI, Valuation & Information GroupKay Kauchick, MAI, ValueTech Realty Services, Inc.

Marcia Ringo, HUDVirgil Tetsworth, HUD

HUD HQ


Valuation and Market Study Training - Tuesday, May 12, 2015 (SCHEDULE REVISED – SLIGHTLY) 7:30 – 8:30 Breakfast 8:30 – 8:45 Today’s Training Session – Introduction of Trainers, Overview of Training

Jennifer Massey – Highland Commercial Mortgage 8:45-9:00 Deal Engagement – Preparing for Review – Lender

Sheri Davis – Highland Commercial MortgageRoy Williams – Wells Fargo

9:00-9:30 Deal Engagement – Preparing for Review – 3rd Party

Bob Lefenfeld – Real Property Research GroupKevin Lynch – Cushman & Wakefield of North Carolina, Inc.Nelson Pratt – Hodges & Pratt Company, PC


Valuation and Market Study Training - Tuesday, May 12, 2015 (SCHEDULE REVISED – SLIGHTLY) 9:30-10:15 Site visit

Tad Scepaniak – Real Property Research GroupKevin Lynch – Cushman & Wakefield of North Carolina, Inc.Nelson Pratt – Hodges & Pratt Company, PCSheri Davis – Highland Commercial MortgageRoy Williams – Wells Fargo

10:15 – 10:30 Break 10:30 – 11:45 Preparing the Market Study – What is Involved?

Bob Lefenfeld – Real Property Research GroupTad Scepaniak – Real Property Research Group

Preparing the Appraisal – What is Involved? Kevin Lynch – Cushman & Wakefield of North Carolina, Inc.Nelson Pratt – Hodges & Pratt Company, PC

11:45 – 12:15 Lender Review/Finalizing of the Reports Sheri Davis – Highland Commercial MortgageRoy Williams – Wells Fargo

12:15 – 1:15 Lunch – Sponsored by: ACRE Capital, LLC; M&T Realty Capital Corp.

1:15 – 2:15 HUD’s Review of the Report (how reviewed now / here is how it would be under the single UW model – compare & contrast)Marcia Ringo – Director of Operations, Atlanta HubVirgil Tetsworth – Senior Appraiser, Atlanta Hub 2:15 – 3:30 LEAN Dan Schneider – Valuation & Information GroupKay Kauchick – Value Tech Realty Services, Inc. 3:30 – 3:45 Break 3:45 – 5:15 Roundtable Discussion – Best Practices, Lessons Learned, Local Office Requirements, NEW MAP GUIDE Moderator: Jennifer Massey – Highland Commercial Mortgage 5:30 – 7:00 Cocktail Reception – The Ravinia Gardens – Sponsored by: Capital One; Red Mortgage Capital; Manning, Morris & Martin, LLP; CohnReznick, LLC 7:00 Dinner on Your Own


Valuation and Market Study Training - Tuesday, May 12, 2015 (SCHEDULE REVISED – SLIGHTLY) 11:45 – 12:15 Lender Review/Finalizing of the Reports

Sheri Davis – Highland Commercial MortgageRoy Williams – Wells Fargo

12:15 – 1:15 Lunch – Sponsored by: ACRE Capital, LLC; M&T Realty Capital Corp.

1:15 – 2:15 HUD’s Review of the Report (how reviewed now / here is how it would be under the single UW model – compare & contrast)Marcia Ringo – Director of Operations, Atlanta HubVirgil Tetsworth – Senior Appraiser, Atlanta Hub

2:15 – 3:30 LEAN

Dan Schneider – Valuation & Information GroupKay Kauchick – Value Tech Realty Services, Inc.

3:30 – 3:45 Break 3:45 – 5:15 Roundtable Discussion – Best Practices, Lessons Learned, Local Office Requirements, NEW MAP GUIDE Moderator: Jennifer Massey – Highland Commercial Mortgage 5:30 – 7:00 Cocktail Reception – The Ravinia Gardens – Sponsored by: Capital One; Red Mortgage Capital; Manning, Morris & Martin, LLP; CohnReznick, LLC 7:00 Dinner on Your Own


Valuation and Market Study Training - Tuesday, May 12, 2015 (SCHEDULE REVISED – SLIGHTLY) 3:45 – 5:15 Roundtable Discussion – Best Practices, Lessons Learned, Local Office

Requirements, NEW MAP GUIDE Moderator: Jennifer Massey – Highland Commercial Mortgage

5:30 – 7:00 Cocktail Reception – The Ravinia Gardens – Sponsored by: Capital One; Red

Capital; Manning, Morris & Martin, LLP; CohnReznick, LLC 7:00 Dinner on Your Own


Overview of Valuation and Market Study Training


What we hope to accomplish today includes:

• Provide guidance on how to perform those roles and responsibilities

• Provide HUD with more complete reports from the third parties and analysis from the lenders

• Manage expectations for all parties• Clear up any misconceptions• Share ideas


References for information in the training includes:

• MAP Guide• Decision Circuit (LEAN)


Deal Engagement

Preparing for the Review – Lender

Sheri Cruise Davis, Deputy Chief UW, Highland

Commercial Mtg.Roy Williams, Deputy Chief Underwriter - Wells Fargo

Multifamily Capital


When screening a potential deal, a lender is looking at:

• Age of the property• Photos of the property (provided by borrower or

found online)• Aerial Map (Bing, Google, Mapquest)• Information provided by the borrower (Property

Financials / Operations / Budget / Rent Rolls)• Information gathered from online searches• Type of Property

• Garden, mid-rise, high-rise, brownstone• Market or Affordable


Hot Button Items

• Timing• Borrower’s expectations• Our Expectations• 3rd Party Expectations


Hot Button Items

• Qualifications of 3rd Party Reviewer – What to look for• Staffing – contract or actual staff• Get sample of work to review• List of other lenders and HUD offices

• Communication• How much and what type?• Who is your contact from the 3rd party?• Getting everyone on the same page


Deal Engagement

Preparing for the Review – 3rd Party

Bob Lefenfeld, Real Property Research Group

Kevin Lynch, Cushman & WakefieldNelson Pratt, Hodges & Pratt Company, PC


Scope of Work

Scope of Work as defined by USPAP1) Identify the problem

a) Determine through discussions with clients in regard to the specific assignment

b) Appraisers judgment and competency help identify the problem2) Determine and perform the scope of work necessary to develop credible assignment results3)Disclose the scope of work in the report

Pricing Assignment

Pricing the Assignment1) Need to know the type of deal (223(f) vs. 221(d)

(4)) and if it is (Existing, Proposed, LIHTC, Section 8, Mixed-Use)

2) Location of property3) Availability of data and size of the market

(primary markets versus tertiary markets)4) Scope of work plays pivotal role in determining

the appropriate fee and turn time due to ease or complexity of assignment

5) Timing for the initial draft and submission of application

6) Fee for updated appraisal/site visit

Managing Client Expectations

Justifiable requests after an appraisal report is transmitted to the client1) Consider additional and specific comparable sales as provided via the lender/client2) Provide further detail, substantiation, or explanation for the real estate appraiser’s value conclusion3) Correct errors in the real estate appraiser report; either typos or consistency with other 3rd party reports

Any other requests cannot be addressed in the appraisal!

• PHASE ONE-PRELIMINARY DEMAND ANALYSIS

• PHASE ONE-PRELIMINARY DEMAND ANALYSIS – PRODUCT CONSULTATION

• COMPREHENSIVE ANALYSIS


Scope of Work - Types of FHA Market Studies

PHASE ONE-PRELIMINARY DEMAND ANALYSIS

Designed to provide information on the balance of supply and demand in a given market and provide a snapshot of the current competitive environment in terms of vacancy and price position.


• Used for concept meeting for HUD. • No analysis of the subject site or product

being proposed. • Provides the foundation for a

comprehensive analysis.

PHASE ONE-PRELIMINARY DEMAND ANALYSIS – PRODUCT CONSULTATION

Not only provides information on the balance of supply and demand in a given market, but presents assessment of the subject site and suggestion/evaluation of product for the proposed property, discussion of target markets, appropriate unit type, unit mix, features, amenities, and pricing.


• Provides useful information for internal decision-making

• Information for a concept meeting with HUD. • Provides the foundation for a Comprehensive

Analysis.

COMPREHENSIVE ANALYSIS

Once a project has received a positive response from the HUD concept meeting, a Comprehensive Analysis is conducted that meets the market study guidelines as outlined in Chapter 7 of the HUD MAP Guidebook.


• Provides detailed contextual information about the property which is not typically covered in a preliminary analysis

• Evaluates the final project proposed by the borrower, reflecting the rents derived by the appraisal of the property,

• Estimates absorption

MARKET STUDY CONSIDERATIONS


• Lender should be Quarterback, coordinating appraiser and market analyst.

• Analyst can provide initial findings on rents as second opinion.

• Final analysis should reflect appraiser’s rents, which are rent of record.

• Four to Five Weeks Standard Turnaround• Even if expedited, takes time to conduct survey

and pipeline research. • Information presented is helpful starting point,

but analyst must develop their own information.

TIMING

COMMUNICATION

Data Collection and Site Visit

Tad Scepaniak, Real Property Research Group

Kevin Lynch, Cushman & WakefieldNelson Pratt, Hodges & Pratt Company, PC


Items needed when deal is signed up and engaged

1) Send client a laundry list of items needed to prepare appraisal (Applies to existing and proposed construction)

a) survey, site plan, legal description, tax bill, building floor plans, unit floor plans, elevation plans, and unit mix summary

b) Need detailed description of improvements or proposed developments (includes interior and exterior amenity package)

c) Detailed rent roll, operating statement history (3-years), budget, ground leases, capital improvements history, purchase agreement, environmental / soil reports, PCNA, and contact for site inspection

Valuation Site Visit

Valuation Site Visit (cont.)

2) Contact local county and city planning departments for zoning, permits, properties under construction / proposed

3) Check survey for wetlands and flood zones (Obtain copy of FEMA map)

4) Research local county assessor records for tax cards, tax maps, zoning map, and tax bills

5) Specific data on the expenses to include staffing schedule, insurance premiums/new quotes, management agreements, and any potential variances from the historicals; discuss on front end

Neighborhood Analysis

Checklist for Neighborhood Analysis1) Drive the immediate subject neighborhood (N,S, E, W)2) Note surrounding land uses3) Note proximity to supporting land uses conducive for multi-unit development (proximity to grocery store, shopping, major employers, schools, transportation corridors, places of worship, and competitive properties)4) Note subjects location and accessibility / visibility5) Note demographic makeup of neighborhood6) Note any potential suitable land for development, as well as communities under construction / proposed; new commercial development as well

Site Analysis

Checklist for Site Analysis1) Meet with leasing manager / maintenance supervisor2) Walk property and take pictures / notes of all common area amenities3) Inspect interior of units - Model after Freddie Mac guidelines which states minimum of five units and no more than 25 units including all vacant and down units so we can state readiness or repairs needed for occupancy. Must see at least one of each unit type.4) Note interior layout of units and upfit; on the valuation side we are focused on layout, finishes, and overall appeal to the market5) For vacant properties, walk perimeter of property if we can

Site Analysis (Cont.)

Checklist for Site Analysis 6) Talk with leasing manager to identify competition and other important items that are project specific, i.e. schools, employment centers, tenant preferences, etc. 7) Speak with maintenance supervisor and discuss any major items that have been repaired or current problems8) Analyze parking (spaces and current spaces being utilized)9) Lastly, drive the competitive rental properties and survey the competition and take photos

Items needed from client prior to site visit and finalizing reports

1. Site identifiers - map, legal description, tax id number, parcel number, etc…

2. Site details – acreage, zoning, wetlands, etc..3. Project layout – site plan, building position,

entrances, etc..


Tasks to Accomplish During Site Visit/Field Work1. Physical description of site and surrounding

parcels. 2. Location of community amenities/features

relative to site including transportation/shopping/employment.

3. Potential positive/negative factors that will influence project feasibility or achievable rents.

4. Location of competitive rental alternatives and a comparison with the subject site.

5. Factors affecting market area definition including accessibility or comparability.

6. Local perspective (talk to interested parties).


Do market analysts/appraisers need to meet client/developer on site?

1. Not mandatory, but can be helpful to understand project layout and developer’s perspective of market and competitors.

2. Don’t need a three-day tour of the market. Field work needs to be conducted independently.



Question and Answers

BREAK!

Please be back in 15 Minutes.


Preparing the Market Study

Bob LefenfeldTad Scepaniak



REVISED CHAPTER 7 MARKET STUDY GUIDELINES

Section 7.5 - General Comment

MAP Guidelines should follow NCHMA organization, reflecting how market study is typically presented:

• Site Analysis and Market Area• Economic Context• Demographic Context• Supply Context• Findings and Conclusions:

1.Balance of Supply and Demand 2.Affordability 3.Product Positioning in terms of offering and pricing4.Absorption


Section 7.5.C - Description of Proposed Project

Standardize terminology for type of housing Market Rate Affordable Deeply Subsidized

Keep Property Description and Location Analysis Separate


Section 7.5.f. - General Characteristics of HMA

Create separate sections for: Economic Conditions Demographic Trends Competitive Environment


Section 7.5.I - Demand Estimate and Study Net Demand for rental units should be separate

from “Effective Demand”.

• “Net Demand” - Addresses the demand and supply factors for all types of rental housing:

Renter Household Growth Tenure Breakdown Replacement of Lost/Dilapidated

Units(no reference to income qualification)


Effective Demand (Newly Defined) Addresses the number of income qualified

households that the subject and other projects addressing the same target market need to capture. Capture Rate Analysis

▪ Capture Rate is calculated by dividing the total number of units at the property by the total number of age, size and income qualified renter households in the primary market area.

Penetration Rate Analysis ▪ Penetration Rate is calculated by dividing the total number of

units at the subject plus existing and proposed comparable communities, by the total number of age, size and income qualified renter households in the primary market area.


Section 7.5.I - Demand Estimate and Study

Add For deeply subsidized communities, sensitivity, affordability, and penetration rate analyses should be conducted both with and without project based rental assistance.

Move: The potential impact of the proposed property on existing rental developments should stand on its own as a conclusion rather than part of demand.


Section 7.5.I - Seniors Housing

Generally, 221(d)(4) and 231 properties target independent seniors that do not have frailty issues and do not offer services to address Frail seniors (ADLs). Vast majority of the senior requirements in the Guide are not applicable to the product type analyzed.

Market analyst opinion is that much of the senior-specific content is unnecessary, given the product type analyzed, and can be incorporated into the Guide elsewhere.


Key Components of Market Study

Market Area – description should include both physical boundaries of market area and rationale for its selection. Explain any limiting factors in the market area and/or why residents of this area would move to site.

Economic Conditions – beyond unemployment rate. Recent economic activity provides context to household projections.

Demographics – key numbers: trend in tenure, income by tenure, person per household…

Competitive Environment – Overall survey segmented into tiers/class if applicable.

Analysis – Combine all factors/sections in concise conclusion.



Preparing the Appraisal

Nelson PrattKevin Lynch

Identify Scope of Work Type of Loan and Property Type will dictate

HUD Forms needed Location Age of Project Market, Affordable, Subsidized Approaches to Value


Selection of Rent Comparables Location Most Competitive Market Survey and interview leasing

consultant and/or property manager Drive Neighborhood as previously discussed Published and Online Sources Asset Class


Selection of Land Sales Location Similar Highest and Best Use Size of Market Contracts and Listings Unit of Comparison: Price Per Unit, Per Acre,

Per SF


Selection of Improved Sales Location Market Conditions Number of Units Condition Verification & Cap Rates Units of Comparison: Price Per Unit, EGIM,

Per SF


Selection of Expense Comparables Location Type of Project Class Age/Condition Trending Calculation Availability of Data


HUD Forms HUD-92273

Adjustments – Paired Analysis, Interviews HUD-92274

Trending HUD-92264 HUD-92264-T

When needed?


Hot Topics Remaining Economic Life (REL)

Factors that go into calculation Methods to estimate

Capitalization Rates Calculating the Cap Rate




Lender Review and Finalization of the Report

Sheri, Roy



221(d)(4) Market Study Review

Questions to Consider:

• Is the Primary Market Area developed by the Market Analyst a reasonable area from which the subject will draw residents?

• Do demographic trends in the market support the need for additional housing units (population growth, household growth, unemployment)?

• Do income bands selected by the appraiser seem reasonable in comparison to the subject’s projected rents?

• Is the market analyst’s absorption projection supported by recently absorbed comparables?

• Does the market analyst’s conclusion of capture rate or penetration rate indicate that absorption of the proposed subject is achievable?


221(d)(4) Appraisal Review

Questions to Consider:

• Did the Appraiser’s selection of most comparable properties agree with the Market Analyst’s conclusion?

• Were the HUD 92273 adjustments reasonable and market rents considered achievable?

• Were expense comparables on the 92274 appropriately selected and trended per HUD guidelines?

• In concluding land value, were appropriate comparables selected and adjustments made?

• Does the appraiser’s estimate of Initial Operating Deficit indicate that the subject can be absorbed within a reasonable period of time?


223(f) Appraisal Review

Lender’s responsibilities:

• The Underwriting Narrative must include a full discussion by the Underwriter of the approaches to value and the appraiser’s reconciliation and value conclusion.

• The Lender must state any reasons for disagreement with the appraisal report. The underwriting summary should contain a thorough discussion of any differences between the value conclusions made by the appraiser and what was actually used in underwriting the loan.

• The appraiser must complete an appraisal of the property establishing market value utilizing the cost, income, and comparable sale approaches. The Cost Approach may be eliminated at the discretion of the appraiser for subjects that are ten or more years old, although an estimate of the land value must still be provided.


223(f) Appraisal Review (cont’)

• The appraiser should, where practicable, inspect the property with the Needs Assessor. The appraiser must consider the eligibility of the project, confirm the project occupancy level, and verify the owner’s rent roll during the inspection.

• The Lender must assure that forms HUD-92273, Estimate of Market Rents and HUD-92274, Operating Expense Analysis Worksheet, are complete. This is based on the determination made by the appraiser of the project’s income and operating expenses including a review of the operating history of the property (rent roll and financial statements).

• The Lender must assure that all applicable sections of the form HUD-92264, are completed in accordance with current policy, for the type of project proposed.


223(f) Appraisal Review (cont’)

• HUD-92264 items to be calculated by the appraiser include: a. Market rents and estimated income b. Estimated total operating expenses c. Total estimated replacement cost d. “Warranted Price of the Land” e. Market value of the project f. Estimate of operating deficit and replacement reserve g. Estimated and actual occupancy rate h. REL

• The data provided in the Lender's HUD-92013 and HUD-92264 must be consistent and

any inconsistency between the data reported on a HUD-92264 prepared by the appraiser and the Lender’s HUD-92264 must be explained in the Underwriting Summary.



LUNCH!Sponsored by:

ACRE Capital, LLCM&T Realty Capital

Corporation

We will resume in 60 minutes


HUD’s Review of the Report

Marcia Ringo, HUD Atlanta

Virgil Tetsworth, HUD Atlanta



What is Expected in a Well Written Appraisal Report • Adequate narrative discussion supporting the appraiser’s opinions

or conclusions. • Appropriate data used in comparison to the subject. • Most recent relevant comparable data used. • Inclusion of opinions about potential issues that may be perceived

as a problem in the underwriting of a loan on the property. • Consistency of conclusions transferred from one approach to the

next. • All approaches to value used should be given consideration. If

not, adequate explanation is needed. • Perform a reasonableness test. Step back and ask yourself, “Does

this make sense”?


Role of Review Appraiser • Appraisals are reviewed to determine the completeness of the

information used.

• They are reviewed to develop an opinion of the adequacy and relevancy of the data and to determine that the proper adjustments were made to the data.

• In addition, an opinion as to the appropriateness of the appraisal methods and techniques used are made.

• Finally, an opinion as to whether the analyses, opinions and conclusions made are appropriate and reasonable.

• In preparing the review appraisal, the HUD review appraiser conducts an inspection of the subject property.


Identification of the Property • Identify the property appraised.

Property Address Type of Property Number of Units Quality Age Condition Interest Appraised


Purpose, Intended Use and Users of the Review Appraisal • An appraisal review is the act or process of developing and

communicating an opinion about the quality of all or part of the work of another appraiser that was performed as part of an appraisal.

• The review appraisal is made for the purpose of confirming the

conclusions made in the appraisal of the subject property. • It is intended for the use of the United States Department of

Housing and Urban Development. • The appraisal review is to be used to assist in making decisions

about insuring mortgage financing on the property.


Effective Date of Appraisal and Date of Report • Identify the effective date of the appraisal under review and the

date of the report. • Indicate the inspection date by the HUD review appraiser and the

effective date of the review report. • Indicate the review appraisal date of completion. • Identify who the appraiser is.


Scope of Work • An appraisal review is conducted in the context of the market

conditions of the property as of the effective date of the opinion in the work being reviewed.

• Information available to the reviewer that was not available to the

appraiser may not be used in the development of an opinion as to the quality of the work under review.

• The appraisal is reviewed to: determine the completeness of the

information used, develop an opinion of the adequacy and relevance of the data and to determine that the proper adjustments were made to the data.

• An opinion as to the appropriateness of the appraisal methods and

techniques used is made and an opinion as to whether the analyses, opinions and conclusions made are appropriate and reasonable is provided.


Competency • The review appraiser should have knowledge and expertise in the

appraisal of the property under review. • A statement is needed acknowledging that they are competent to

perform the appraisal assignment. • In order to be competent, the review appraiser should have

knowledge in the use of the proper recognized methods and techniques necessary to develop a credible appraisal review decision.


Review Conclusions • Provide an assessment of the appraisal under review. • Does it appear to be complete with adequate information supplied

to make an assessment of the property? • Is the data utilized in the report estimated to be adequate and

relevant to its valuation? • Are the subject apartment rents estimated to represent market? • Is the estimate of market value of the subject property adequately

supported? • Are the appraisal methods and techniques used estimated to be

suitable? • Are the analyses, opinions and conclusions in the appraisal

appropriate and reasonable?


Review Appraiser Certification I certify that, to the best of my knowledge and belief, 1. The facts and data reported by the reviewer and used in the review process are true and correct. 2. The analyses, opinions, and conclusions in this review report are limited only by the assumptions and limiting conditions stated in this review report and are my personal, impartial, and unbiased professional analyses, opinions, and conclusions. 3. I have no present or prospective interest in the property that is the subject of the work under review and no personal interest with respect to the parties involved. 4. I have no bias with respect to the property that is the subject of the work under review or to the parties involved with this assignment.


Review Appraiser Certification 5. My engagement in this assignment was not contingent upon developing or reporting predetermined results. 6. My compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in this review or from its use. 7. My analyses, opinions, and conclusions were developed, and this review report was prepared in conformity with the Uniform Standards of Professional Appraisal Practice. 8. I have made a personal inspection of the subject property of the work under review. 9. No one provided significant appraisal, appraisal review, or appraisal consulting assistance to the person signing this certification.


Review Appraiser Certification 10. Statement of review appraiser’s license information. ______________________________

Signature of Review Appraiser




BREAK!

Please be back in 15 Minutes.

Dan Schneider, MAIVALUATION & INFORMATION GROUP

Kay Kauchick, MAIVALUE TECH REALTY SERVICE, INC.


LEAN Market Study and Appraisal

2- WHAT IS THE DIFFERENCE WITH A LEAN APPRAISAL REVIEW


1- WHAT ARE THE MAIN DIFFERENCES IN REQUIREMENTS WITH A LEAN APPRAISAL

FOCUS ON TWO TOPICS


LEAN APPRAISAL HAS TWO PARTS

Part 1 - Market Study Component

Part 2 - Valuation Component


LEAN APPRAISER CONDUCTS BOTH

PARTS

Important Difference: LEAN vs MAP


LEAN’S VALUATION INCLUDES A BUSINESS COMPONENT

THE REASONS WHY

THE LEAN APPRAISER MUST INCORPORATE MARKET DYNAMICS INTO

THE VALUATION

YOU CANNOT HAVE A SEPARATION OF THE TWO COMPONENTS


LEAN APPRAISAL

GENERALLY SIMILAR TO A MAP APPRAISAL


Look What’s Different


THIRD PARTY PROVIDERS—

RENDER A MARKET VALUE OF THE TOTAL ASSETS OF THE

BUSINESSLEAN REQUIRES A TRUE MARKET VALUE


LEAN WILL ONLY REJECT AN APPRAISAL IF IT DOES NOT MEET USPAP REQUIREMENTS

LEAN DOES NOT REQUEST CHANGES TO THE THIRD PARTY APPRAISER’S VALUE

LEAN RECOGNIZES VALUE IS ONLY ONE COMPONENT OF ANALYZING A LOAN AND

LOAN RISK.


WHAT ELSE IS NEW?

Too High !

Too Low!

Value Is:


WITH LEAN--THE BATTLE OF VALUE IS OVER…


RISK MITIGATED VALUE IS DEAD!!!


Look What’s New…


APPRAISAL MUST HAVE

- Discussion of Market Risk

- Future Supply identified in fringe area of PMA- Document: Who did you speak with?

Names, Phone Numbers

- Future Supply identified in the Primary Market Area (PMA)


DEMAND MODEL IN THE APPRAISAL


No Standard Methodology is DictatedAppraisal Must Provide 3 Case Studies

that demonstrate their model:

Case Study 1 Must Prove when a Market is Under Supplied

Case Study 2 Must Prove when a Market is Over Supplied

Case Study 3Must Prove when a Market is in Balance


LOOK WHAT’S NEW…•LEAN wants an experienced appraiser in the field;

•An experienced appraiser involved in the analysis;

• The experienced lean appraiser cannot be acting only as a reviewer


Lender is responsible for engaging the appraiser

Lender is responsible for conducting a detailed review of the appraisal


LEAN APPRAISAL REVIEW

How is it different?

LEAN USES A DECISION CIRCUIT AS THE FIRST STEP IN

THE REVIEW PROCESS


DECISION CIRCUIT: WHAT IS IT?

AN EXCEL BASED PROGRAM PROVIDED

BY LEAN

AVAILABLE TO UNDERWRITERS


DECISION CIRCUIT CALCULATES LOAN

RISK


HOW DOES IT DO IT?Evaluates the proposed loan

against a number of factors:

Forecasted Revenues against history and marketForecasted Expenses against history and marketSelected Cap Rate against comparablesLoan Amount vs Market Value & Program Requirements


WHEN THE DECISION CIRCUIT IS COMPLETED…

IT RAISES FLAGS


What Is A Flag?

An Indicator of RiskEach Color represents a Level of

Risk

Red = A review is lurking…

Green = HUD Appraisal Review Complete!!!


You have the opportunity to mitigate the flags prior to your

application submittal

HIGH RISK MEDIUM RISK LOW RISK NO RISK


YOUR GOAL:

MANAGE THE FLAGS FOR SMOOTH PROCESSING


OR NOT…

IT IS YOUR CHOICE


Do you have to use it?

NO


IT IS NOT MANADATORY TO USE

• LEAN WILL use the Decision Circuit even if you don’t….

• You SHOULD use the Decision Circuit even if you don’t want to…..


IF YOU USE THE DECISION CIRCUIT

YOU MAY AVOID AN APPRAISAL REVIEW

This expedites the loan process


DON’T USE THE DECISION CIRCUIT

The Process takes Longer


And, you could trigger an appraisal review

when one may not have been necessary!!


AVOID THIS!


Even if a review is not required…

Lender must ensure a quality appraisal is

obtained…

REMEMBER--THERE COULD BE A

COMPLIANCE AUDIT


Just when you thought it was over…....


BONUS-USE THE DECICION

CIRCUIT

If used in its entirety (for applicable programs)

it replaces the need to complete the appraisal section of the

lender narrative


DECISION CIRCUIT-HOW DO YOU USE IT?

LET’S GET STARTED



Roundtable Discussion

HUD HQ and Local Staff


Please give your business card to Lisa Butler at the training for a

Certificate of Attendance

(Certificates will be e-mailed after the conference)


Cocktail Reception in The Ravinia Gardens at

5:30 Sponsored by:

Capital One; Red Mortgage Capital; Manning, Morris & Martin, LLP;

CohnReznick, LLC


Thank You!


Documents

What we hope to accomplish today includes: Provide guidance on how to perform those roles and responsibilities Provide HUD with more complete