Attachment_1_to_Solicitation_12049618Q0001-Performance_Work_Statement.pdf

Attachment 1 to BPA Solicitation 12049618Q0001

PERFORMANCE WORK STATEMENT

APPRAISAL SERVICES - SINGLE FAMILY HOUSING RESIDENTIAL PROPERTY

BACKGROUND: USDA Rural Development (RD) provides direct loans to eligible applicants for single family housing (SFH) residential property. To support this program, RD requires qualified appraisers to provide appraisal services, in accordance with 7 Code of Federal Regulations (CFR) Part 3550, at https://www.rd.usda.gov/files/3550appendix01.pdf.

OBJECTIVE: High quality appraisals to determine market value of SFH residential properties are key to ensuring the Agency obtains adequate security for its loans.

1. REQUIREMENTS FOR APPRAISALS:

A. The appraiser(s) signing the appraisal must be currently licensed in the state where the subject property is located as a Certified General, Certified Residential, or Licensed Appraiser. The appraiser shall be identified as active on the Appraisal Subcommittee website (www.asc.gov) at time of award and maintain professional errors and omissions insurance coverage in accordance with local and state government requirements. The appraiser shall have the specialized knowledge and experience necessary to be competent to appraise single-family housing.

A trainee may sign the report. If a trainee signs the report, the trainee’s registration shall be provided to RD and the qualified appraiser shall sign as Supervisory Appraiser and personally inspect the subject property.

If an appraisal assignment is awarded to a contractor not holding an appraisal license, the awarded contractor may subcontract the appraisal assignment (or any part of it) to a qualified appraiser as outlined above with prior written consent of the RD Contracting Officer (CO). In the event of subcontracting the assignment, the contractor must also adhere to any licensure requirements imposed by any entity having jurisdiction in the state where the property is located.

If required by RD, the appraiser(s) signing the report shall defend the appraisal in court or in the RD appeals process. Cost associated with the defense of the appraisal, when necessary, will be negotiated under a separate purchase order/contract.

Except where noted herein, the contractor or appraiser shall provide all facilities, materials, supplies, tools, equipment, personnel, and travel to accomplish the performance of the requirements of this agreement.

B. The appraisal must comply with the current edition of the Uniform Standards of Professional Practice

(USPAP) and agency requirements as described in Handbook-1- 3550 https://www.rd.usda.gov/files/hb-1- 3550.pdf , Handbook-2-3550, Chapter 2, https://www.rd.usda.gov/files/3550-2chapter02.pdf , together with 7 CFR 3550 as applicable to all additional appraisal requirements https://www.rd.usda.gov/files/3550appendix01.pdf, and Rural Development Instruction 1922-A, https://www.rd.usda.gov/files/1922a.pdf .

C. All appraisals for RD will provide market value based on the following market value definition used by federally insured financial institutions; Title XI of the Financial Institutions Reform and Recovery Enforcement Act of 1989; Definition of Market Value (12 U.S.C. 1818, 1819):

Definition of Market Value:

Market value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

http://www.rd.usda.gov/files/3550appendix01.pdf http://www.rd.usda.gov/files/hb-1-3550.pdf http://www.rd.usda.gov/files/hb-1-3550.pdf http://www.rd.usda.gov/files/3550-2chapter02.pdf http://www.rd.usda.gov/files/3550appendix01.pdf http://www.rd.usda.gov/files/1922a.pdf

(1) Buyer and seller are typically motivated;

(2) Both parties are well informed or well advised, and acting in what they consider their own best interests;

(3) A reasonable time is allowed for exposure in the open market;

(4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

(5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

D. The appraisal must be completed using the most recent version one of the following forms: Fannie Mae Form 1004/Freddie Mac Form 70, "Uniform Residential Appraisal Report," for all one-unit, single family dwellings;

Fannie Mae Form 1004C/Freddie Mac Form 70B, “Manufactured Home Appraisal Report,” for all manufactured homes; Fannie Mae Form 1073/Freddie Mac Form 465, “Individual Condominium Unit Appraisal Report” for all individual condominium units; Fannie Mae Form 2055/Freddie Mac Form 2055, "Exterior-Only Inspection Residential Appraisal Report," for all one-unit, single family dwellings for all properties when there is no visual inspection of the interior required or requested by RD; or Fannie Mae Form 1004D/Freddie Mac Form 442, “Appraisal Update and/or Completion Report”.

2. TYPES OF VALUES:

Depending on the purpose of the appraisal, an appraiser will either determine the estimated market value of the property in its current condition (the “as-is” value) or; determine the estimated market value of the property, based on completion of construction in accordance with plans and specifications, or completion of rehabilitation based on a list of repairs to be considered (the “as-improved” value). https://www.rd.usda.gov/files/3550-1chapter05.pdf (Handbook-1-3550, Chapter 5 (5.15))

A. As-Improved value (Value Subject to Completion) - Loans for planned new construction or rehabilitation require an estimate of the “as-improved” value considering all construction / repairs / rehabilitation are complete.

B. As-Is value – Loans for existing dwellings (including a new construction dwelling that has been completed at the time of appraisal) involving no repairs require an as-is value. As-is value appraisals may also be needed to support loan servicing actions or to determine a disposition plan for real estate owned (REO) properties.

C. Liquidation Value – Liquidation appraisals may be needed to support loan foreclosure actions or to determine a disposition plan for real estate owned (REO) properties.

Liquidation Value, is defined as:

The most probable price that a specified interest in property which a property should bring under the following conditions:

(1) Consummation of a sale within a short time period;

(2) The property is subjected to market conditions prevailing as of the date of valuation;

(3) Both buyer and seller are acting prudently and knowledgably;

(4) The seller is under extreme compulsion to sell;

(5) The buyer is typically motivated;

(6) Both parties are acting in what they consider to be their best interests;

(7) A normal marketing effort is not possible due to the brief exposure time;

(8) Payment will be made in cash in US dollars (or the local currency) or in terms of financing arrangements comparable thereto;

(9) The price represents the normal consideration for the property sold unaffected by special or creative http://www.rd.usda.gov/files/3550-1chapter05.pdf financing or sales concessions granted by anyone associated with the sale.

Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th Ed., (Chicago: Appraisal Institute, 2015)

3. SPECIAL INSTRUCTIONS:

A. Loan Servicing Appraisal - In the event the appraiser is requested to complete an appraisal for a servicing action such as foreclosure, short sale, deed-in-lieu, etc., an appraisal reflecting the market value of the property in its “as-is” condition is necessary for RD use.

Additionally, the appraiser shall provide under the same cover within the addenda, a liquidation value estimate for the subject property, as defined in Item 2, considering a prescribed marketing period of 30 days.

Typically, when a property in foreclosure is occupied, the appraiser will not be required to gain access for a visual inspection of the interior of the subject property. In this case, the appraiser must complete the appraisal report on the Fannie Mae Form 2055/Freddie Mac Form 2055, “Exterior-Only Inspection Residential Appraisal Report” unless specifically instructed otherwise by RD. The report must include an extraordinary assumption that there was no visual inspection to the interior and details of the sources being used for the interior components and the assumed condition of the interior. https://www.rd.usda.gov/files/3550- 1chapter13.pdf (Handbook-1-3550, Chapter 13 (13.17) (C) (3).

B. Subsidy Recapture Appraisal – The appraiser must complete an as-is market value appraisal.

The appraiser must provide the estimated contributory value of all capital improvements added to the subject property from original date of purchase as specified / indicated by the owner. In the event the appraiser cannot determine from local records what capital improvements may have been added, the appraiser may contact the Authorized Government Representative (AGR) to determine if original loan records detail historic property conditions. Each capital improvement must be noted individually. The appraiser must provide the estimated contributory amount of market value, if any, for each capital improvement item. Items considered to be general maintenance are not considered to be capital improvements. Values shall be supported by market evidence or other valuation methods deemed appropriate by the appraiser.

https://www.rd.usda.gov/files/3550-2chapter02.pdf (Handbook-2-3550, Chapter2 (2.23) (8)

4. APPRAISAL METHODOLOGY

RD requires appraisers to use the following appraisal methods to arrive at a final estimate of value.

A. Sales Comparison Approach: Under this method, the appraiser uses the recent sales prices of properties that are comparable in location and characteristics to the subject property in order to estimate a market value for the property. The appraiser must use at a minimum three (3) comparable closed sales of single family residential properties that sold in the previous 12 month period unless the appraiser provides documentation that such comparable transactions are not available in the area. Comparable sales should be located as close as possible to the subject dwelling, from within the competitive market area, and should be the most comparable available for purposes of valuation.

B. Cost Approach: This method is specified in Handbook 1-3550, Chapter 5, found at this web address, http://www.rd.usda.gov/files/3550-1chapter05.pdf. For all proposed construction or all homes having an age of one year or less, RD requires that the appraiser develop, report and reconcile the cost approach to value. On homes over one year of age, the appraiser should determine whether the cost approach is relevant or necessary to determine a valid opinion of market value. This determination must be developed and reported in accordance with the USPAP.

http://www.rd.usda.gov/files/3550-1chapter13.pdf http://www.rd.usda.gov/files/3550-1chapter13.pdf http://www.rd.usda.gov/files/3550-2chapter02.pdf http://www.rd.usda.gov/files/3550-1chapter05.pdf

Under this method, the appraiser derives an estimate of value using replacement cost estimates for the improvements, less depreciation of all forms, and then adding an estimate of the site value.

The appraiser will identify the source of cost estimates, such as Marshall and Swift Residential Cost service, local builder’s cost data or other national publication for residential costs, used in the cost approach. The methodology used to estimate depreciation must be stated in the report.

Properties in remote rural areas, on tribal lands (American Native and Alaskan Native), areas with a lack of market activity, or those representing a leasehold interest, where it may be difficult to obtain adequate comparable sales to be used for comparative purposes in order to appraise a property. In these areas, the sales comparison approach is not required. Instead, Marshall & Swift Form 1007, Square Foot Appraisal Form, must be used.

Remote rural areas are identified by RD and are defined as areas lacking sufficient market activity and having the following characteristics:

• Scattered population;

• Low density of residences

C. Income Approach: Under this method, the appraiser derives a value indication for an income-producing property by converting its anticipated benefits (cash flows and reversion) into property value. This conversion can be accomplished in two ways. One year’s income expectancy can be capitalized at a market-derived capitalization rate or at a capitalization rate that reflects a specified income pattern, return on investment, and change in the value of the investment. Alternatively, the annual cash flows for the holding period and the reversion can be discounted at a specified yield rate.

The Income Approach method of valuation may only be used for Agency Non- Program Properties such as Real Estate Owned (REO) or Non-Program Loan Assumptions.

USPAP Standards Rule 2-2 (a) (viii) require the appraisal report to summarize the information analyzed, the appraisal methods and techniques employed, and reasoning that supports the analyses, opinions, and conclusions; and also, exclusion of the sales comparison approach, cost approach, or income approach must be explained.

5. APPRAISAL REQUIREMENTS:

A. The appraiser signing the appraisal report must understand and agree that RD is the client, and all reports must be addressed to USDA – Rural Development. The intended user of the report will be RD and any other intended user specified by the agency. Any questions relating to agency requirements of the appraisal assignment should be directed to the AGR and will not be directed to the property owner, real estate agent, builder/contractor, or any other party to the transaction. Communication relating to the assignment, directed to the AGR, can come from the appraiser signing the appraisal report or the contractor selected for the assignment and in all instances RD staff will be granted permission to directly communicate with the appraiser signing the report.

B. The appraisal report must be Uniform Appraisal Dataset (UAD) compliant.

C. The appraisal must include a completed Fannie Mae Form 1004MC/Freddie Mac 71 “Market Conditions

Addendum.”

D. A property contact person will be provided by the AGR and ensure the appraiser has access to the subject property for inspection, unless the property is occupied and the appraisal is for foreclosure purposes. In this situation, a drive-by / exterior only appraisal shall be conducted utilizing the extraordinary assumption the condition of the exterior of the dwelling indicates a similar condition for the interior.

Appraisal fees or turnaround times must not be discussed with the property contact, the property owner or the borrower. The appraiser must notify the AGR immediately if any of the following occurs:

(1) The appraiser cannot gain adequate access to the property;

(2) The appraiser does not receive essential property information in a timely manner;

(3) The appraiser has previously appraised or is in the process of appraising the property for another client; or

(4) The appraiser has any other potential conflict of interest with respect to the assignment.

E. If appropriate, the RD field office will prepare a list of repairs needed to insure the property meets the Agency regulations and guidance. The list of repairs, which is based on the inspection reports prepared by State-licensed inspectors or qualified third-party inspectors hired by the applicant will be provided to the appraiser for the purpose of obtaining an “as-improved” value. The list of repairs shall be provided by the RD Office processing the loan application. The appraiser is responsible to take into account the RD required repairs and must include the list of repairs in the addendum of the appraisal report.

F. The appraiser must provide an opinion of site value supported by a narrative of comparable land sales or other methods used for estimating site value. If support is not included in the appraisal report, a statement by the appraiser that such information is available for review upon request and in the appraiser’s work file should be made. The land must be valued as though vacant and ready for development.

• The appraiser must specify whether the site is or can be subdivided into more than one site under existing local zoning ordinances.

• The appraiser shall discuss the site size and the concluded site value and whether they are typical for the subject market.

• Any land area of the subject property that is determined by the appraiser as either excess land or surplus land must be addressed and valued accordingly together with documentation and support within the appraisal report for the appraiser’s conclusions.

G. In addition, the appraisal report for a manufactured home must also meet the following requirements:

(1) Cost Approach: Manufactured Home Appraisal Reports will require a published cost data service such as the Marshall and Swift Residential Cost Guide or the N.A.D.A. Manufactured Housing Appraisal Guide calculations to be included. The appraiser must take at least one of those values into consideration in arriving at a value conclusion.

(2) Sales Comparison Approach: The appraisal report must contain at least two comparable manufactured home sales of similar configuration and quality. The appraiser may use either site-built housing or a different type of factory built housing as the third comparable sale if the appraiser explains the reason for selecting the comparable and support the appropriate adjustments in the appraisal report.

H. All extraordinary assumptions, hypothetical conditions, and limiting conditions must be clearly and prominently described in a single location near the beginning of the report and in appropriate sections of the appraisal. General assumptions and limiting conditions that reduce the normal scope of appraisal due diligence are not allowed.

I. The appraiser must keep all information and materials furnished by Rural Development, the owner, and/or property contact regarding the subject property confidential, as required by USPAP and the Gramm-Leach-Bliley Act (also known as the Financial Services Modernization Act of 1999). Any information obtained through public sources is not considered confidential information. Disregard of this privacy requirement will be cause for immediate debarment as a contractor for the federal government.

J. All appraisals must comply with the Fair Housing Amendments Act of 1988. According to the Act, it is unlawful for an appraiser to use factors that are discriminatory on the basis of race, color, religion, sex, disability, familial status, or national origin in the sale, rental, leasing, or financing of housing.

K. Each appraisal will be submitted electronically, using the industry standard Extensible Markup Language (XML) appraisal data formats Mortgage Industry Standard Maintenance Organization (MISMO), with embedded PDF. Electronic submissions, in the above formats, must be emailed to the AGR as indicated on the confirmed Single Family Appraisal Order Form, Purchase Order, or Task Order (SF 1449).

6. OBSERVED CONDITIONS:

The appraiser is required to make a property inspection to gather data to support the determination of value. Readily observable conditions shall be noted.

A. The appraiser(s) signing the appraisal report must make at a minimum a personal inspection of the subject

(interior and exterior) unless the appraisal is for foreclosure purposed of an occupied dwelling, then an exterior only inspection is required. Also, inspection of all comparable sales (exterior) at a minimum from the street. The appraiser must indicate that the subject’s interior and exterior and all comparable sales were personally inspected / observed within the appraisal report. Readily observable conditions must be noted for the following: attic space, crawl space, floors and walls for significant structural failure, moisture damage, or evidence of past fire damage; the roof condition for remaining life; the mechanical systems for operability; and all surfaces for defective paint.

B. In the event that access to the subject interior and/or exterior cannot be obtained, the appraiser must obtain prior authorization to continue the assignment without inspection. In the event RD authorizes valuation without an inspection, the appraiser must comply with USPAP Standard Rule 1-2 (F) which requires the appraiser to identify any extraordinary assumptions necessary in the assignment. The extraordinary assumption must include detailed disclosure of the assumed condition, the source(s) the extraordinary assumption is based upon and must be clearly labeled as such within the appraisal.

C. The appraiser must note any suspected environmental hazards, including issues external to the property that could adversely impact the property's value. Examples of environmental hazards would include damaged asbestos-containing building materials, underground storage tanks, chemical leaks, spills, staining of ground surfaces, or on-site waste disposal such as sludge, oil, paints, or chemical residues. If the appraiser observes any suspected environmental hazards, he/she must notify the AGR immediately and refrain from finalizing aspects of the appraisal that could be impacted until resolution of the issue or until instructed otherwise.

D. The appraiser must notify the AGR. In the event the appraiser observes a deficiency in the property that does not meet minimum property requirements, of decent, safe and sanitary as outlined in HB-1-3550, paragraph

5.7. https://www.rd.usda.gov/files/hb-1- 3550.pdf

E. For uninhabited dwellings where utilities are temporarily disconnected, the appraiser will inspect all mechanical systems (heating, plumbing, electrical) for observable conditions, but will not be responsible for reporting operability of these systems. Unless otherwise notified, the appraiser may assume operability for valuation purposes and this must be mentioned as an “extraordinary assumption” in the appraisal report.

F. Where applicable, appraisers should be familiar with the general provisions of “green properties” in single-family housing. The appraiser shall consider what impact (if any) such factors have on the value of the subject property. Any impact on value should be supported by market evidence.

G. The Mutual Self-Help Program, is a housing program utilizing supervised labor performed by borrowers as part of the construction process. Construction conducted under the program is supervised by technical experts to assure the quality of its completion.

Appraisal of properties constructed under the Mutual Self-Help Program should consider construction, materials and finish will be completed in a workmanlike and professional manner.

http://www.rd.usda.gov/files/hb-1-

7. DOCUMENTATION:

All approaches to value and the value opinion must be in accordance with acceptable appraisal methodology.

A. All reports must include a location map (should include proximity to applicable road/highway), flood plain map when the property is located in a designated flood plain, land sales map, sales comparable map, rent comparable map (if applicable), plat map, and building sketch (indicating interior building layout, garages and all external buildings).

B. For new construction, the appraisal report must include clear original color photographs of the subject’s front, rear, street and street easement (private access), if applicable. In all other appraisals colored photographs showing at a minimum the front, rear, and both sides to the exterior. Interior photographs should be included showing each room type, attic and crawl spaces, other non-gross living area (sun rooms, patio/deck/porch/fences) and any noted structural, safety and/or sanitary deficiencies. Additionally, photographs of improvement components that have been upgraded shall be included to document and support the appraiser’s determination of the subject’s effective age if different than its actual age. A current original photograph of each comparable sale and listing used in the completion of the appraisal is required. If the comparable sale and listing photographs are not available the appraiser should provide, at a minimum, multiple listing service photographs, whenever possible, along with the cited source from which the photographs were obtained.

C. The bedroom shall meet legal requirements (building code, zoning ordinance, etc.) as mandated by the local county/state government enforcement agency and applicable agency regulations where subject property is located, if any such legal requirements exist.

D. Verification from third party sources should be noted within the appraisal and maintained as part of the appraiser’s work file.

E. The appraisal shall include photographs of all external buildings as well as interior photos of the external buildings (if possible). The external dimensions for each of the external buildings must be included, preferably in the building sketch or identified in the addendum of the appraisal report.

F. The appraiser must estimate the remaining economic life of the subject's improvements, (the remaining number of years that the subject's improvements will contribute value to the land) and report this estimate in the cost approach section. An explanation is required if the remaining economic life is less than 30 years (the explanation is used to justify reducing the term of the mortgage to less than 30 years).

G. All appraisals of existing properties must include a discussion of deferred maintenance for the subject property.

Items of deferred maintenance must be listed, and cost to cure for each item must be estimated with support provided.

H. All reports must include a written explanation and documentation to support individual line item adjustments.

Total net adjustment percentages and gross adjustment percentages when compared with the comparable sale unadjusted sale price shall be discussed.

8. COMPLETION CERTIFICATION:

A. If determined by Rural Development (RD), the appraiser may be requested to re-inspect properties to determine if repairs to the home or construction of home were completed. RD shall determine the need for an appraiser to re-inspect a property. Re-inspection services may also be ordered on a separate contract if required. A list of additional repairs will be provided to the appraiser. Not all “subject to” appraisals will require re- inspection services.

B. The appraiser shall submit their findings using the Fannie Mae Form 1004D/Freddie Mac Form 442 “Appraisal Update and/or Completion Report.” The completed report shall be delivered to the AGR within 7 business days from the date the order was received. The report shall include pictures of completed work.

C. Re-inspection reports are due within 7 business days after notification is received from the AGR.

9. APPRAISAL REPORT DELIVERY DEADLINES:

The appraiser shall complete and deliver appraisals to the AGR within approximately 10 business/working days or specified noted delivery time after date of order, or upon receipt of the appraisal information from AGR unless a different deadline is set by written mutual agreement at the time of order. If corrections and/or amendments to the appraisal are requested by the AGR, the corrections and/or amendments are to be delivered as soon as possible, but not later than 4 business days following the request unless, by written mutual agreement, other arrangements are made. If, for any reason the timely delivery of the appraisal report is delayed for reasons beyond the appraiser's control, the appraiser must contact the AGR and convey the reasons for the delay.

If, for any reason the timely delivery of the appraisal report is delayed for reasons beyond the appraiser's control, the appraiser must contact the AGR and convey the reasons for the delay.

10. REVIEW OF THE APPRAISAL REPORT:

All appraisals prepared for RD are subject to technical review by the agency. Appraisers must be prepared to discuss their analyses, reasoning, opinions, and conclusions. Additionally, if requested, they must provide additional written support, clarification, and/or corrected appraisal pages or report. If requested by the AGR or RD’s Regional Agency Appraiser, they will provide assistance to monitor the progress and quality of the appraiser’s performance and in all instances RD Regional Agency Appraisers will be granted permission to directly communicate with the appraiser signing the report as part of the review process.

11. ATTACHMENTS:

The Agency will provide the appraiser all necessary support information available at the time of appraisal engagement.

12. COMPLIANCE WITH PERFORMANCE WORK STATEMENT:

The appraiser must follow all provisions and instructions contained in this Performance Work Statement. When, in the opinion of the appraiser, the Regional Agency Appraiser or the AGR request effort(s) falling outside this Performance Work Statement, the appraiser shall promptly notify the AGR, in writing.

The Regional Agency Appraiser or the AGR has the authority to direct the accomplishment of any effort which goes beyond the Performance Work Statement, however, any changes resulting in additional charges must be approved by the contracting officer prior to commencement of work.

If the appraiser is unable to fully comply with this Performance Work Statement, the appraiser must decline the appraisal assignment in accordance with the USPAP.

13. SPECIFIC STATE REQUIREMENTS:

None

*PLEASE NOTE: FAILURE TO FOLLOW THE STATEMENT OF WORK AND

APPRAISAL INSTRUCTIONS CAN RESULT IN DENIAL OF FUTURE

ASSIGNMENTS.*