The Uniform Appraisal Dataset (UAD) came out a few years ago with rules that standardize inputs for certain fields in appraisal reports used for most lending transactions. For example, home appraisers now use defined C1 through C6 for Condition, rather than using less defined terms like Very Good, Good, Average, and Fair. The new rules were resisted by some residential appraisers because of other complications that can come up in practice. However, when used properly, I think UAD is a step forward for appraisers in terms of appraisal consistency, credibility, and regression analysis (statistical regression works well with quantifiable rankings).
A short time after the release of UAD, an appraisal management client questioned a non-UAD report field (called Functional Utility); because, we entered an undefined term like “Average.” In response, and with no published guidance on the topic, I somewhat jokily developed our own UAD-like definitions to use in that report field. The client was satisfied and, as a result, I began using Functional Utility definitions in all appraisal reports. I continue to do so to this day.
As it turns out, the Functional Utility definitions we developed work quite well at displaying information clearly. No reviewer has ever questioned the Functional Utility definition use and many appraisal clients have since complimented them. The following are the Functional Utility definitions that I developed and use in all A Quality Appraisal’s reports:
F1: Sets today’s standard for maximally functional with almost no functional obsolescence for the typical buyer.
F2: Suffers from minimal functional obsolescence in the eyes of the typical buyer and can be easily cured.
F3: Suffers from some functional obsolescence (the kind that is typical in older properties or properties with less popular floor plans) that is not easily cured, but satisfactory for many buyers.
F4: Suffers from obvious and/or severe functional obsolescence that may or may not be curable and negatively affects the overall livability of the improvement for most buyers.
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Recently, I appraised a vacant home pending sale in SE Portland. This is an older residence built in the 1940s. The Listing Agent had correctly advertised in the Multiple Listing Service (MLS) the finished area that the Multnomah County Assessor had identified — including a basement, main, and finished attic. However, as I walked up the stairs to the second floor I spotted, to my surprise, the UFO (Undisclosed Functional Obsolescence).
The UFO referenced here is that the second floor is only six feet at its tallest, and it slopes immediately downward from the peak. According to Principles of Residential Real Estate Appraising 2001, Functional obsolescence is a “Loss of value caused by loss of utility or poor design” (G14). Obviously, an attic, where one needs to stoop to stand in most areas would be considered functional obsolescence and is not as desirable as a similar-sized property with more typical ceiling heights (In sloped attics, ANSI requires 7 feet height in at least half of the room area to be considered GLA) on the attic level. The real problem is that this obsolescence is rarely disclosed in the MLS. I now know that my subject has the problem; but, how do I value the functional obsolescence if I cannot find another property with a similar attic due to the MLS not disclosing the issue?
In this appraisal, I got lucky and found two other comparable sales with similarly cramped attics. I found the comparables by first searching for properties with similar main and upper areas (according to the county records). I then identified the low ceiling heights by viewing attic photos and talking to the agents. However, had I not been able to find properties that matched the subject’s attic, I could have used others that lacked attics and likened those properties to structures that have more typical attics. This would have provided an estimate for the contributory value of typical attic square footage. I could have then reconciled the subject property somewhere in the middle.
Gary