Evening star., 1934-05-05
BOND APPRAISERS
HAVE DUAL ROLE
Strength of H. O. L. c. Sc
curities Depends Upon
S0undneSs and Fairness.

Upon the fairness and soundness
of appraisals rests the strength Of
the security underlying H. o. L. c.
past due mortgages of urban home
Loan Act, Philip A. Kniskern, ap-
praisal adviser to corporation, de-
clared at conference this week of
corporation officials from Midwest
States, in Chicago.
Kniskern, who Is also president Of
the American Institute of Real Estate
Appraisers, explained major points
in . revised standard manual Of in
structions for the corporations ap-
praisers, which was compiled to as
sure greater accuracy and uniformity
In valuation methods Of corporation
agents in all parts of the country
and to clarity questions of fact and
policy that have arisen in practice.
Fair Values Is Aim.
"The corporation lays down as
basic principle" Kniskern continued,
that every eligible home owner who
applies for mortgage under the act
is entitled to relief to the fullest ex-
tent warranted by the collateral Of
fered.' The relief is given by au-
thorizing loans up to maximum of
80 per cent Of the corporations ap-
praised valuation. 1t is not intended,
however, to expose the Government
to fraud. imposition or hazard by su-
perimposing this liberal loan upon
. valuation unwarranted in its liber-
ality.
The purpose of the appraisal is to
determine the full fair value Of the
property as collateral for a long
term first mortgage loan. The ut
most that can be loaned is 80 per
cent of the value, but it is not in
tended that every loan should be
approved up to this full maximum
The appraised value should not be in
fluenced in any way by the amount
Of the loan requested.
The appraiser is charged with
q grave dual responsibility: to the
corporation and to the home owner;
while he should do full justice to
the owner and to his property, never
theless as a trusted servant of the
Government he must make certain
that the interests of the corpora
tion are properly protected and that
the reviewing authorities are fur
nished with an accurate valuation
picture of the property.
Formula to Set Value.
"The corporation formula for de-
tern1ining valuation gives equal
weight to CD the market value of
the property at the time of the ap-
praisal 90 the cost of a similar lot
at the time of the appraisal, plus
the reproduction cost of the build
ing. minus depreciation, and 90 the
value of the premises as arrived
at by capitalizing its reasonable
the past 10 years.
THE manual points out, however,
chat there are apt to be many loca-
tions where conditions are such that
the equal weighing of the three
factors mentioned above will not give
a proper and sound valuation result
The appraiser is instructed that
where such conditions exist, he may
vary from the result obtained by the
above formula and he is further in
structed to explain in his report on
the property, any material varia-
tions between his Judgment of the
value of the home as collateral for
loan and the results obtained by the
corporation formula.
Among points to be stressed are
marketability of the property, and
its reasonable future when viewed as
security for a long-term loan. Where
the land is subject to transition from
residential property to q more valu-
able use, such as for apartments or
retail business. great caution must
be exercised by the appraiser in ac-
cepting the higher values. The
inclusion Of any speculative elements
or speculative values will not be tol-
Grated. In blighted areas, areas passed
by in the city growth, ill-conceived
subdivision developments, changing
racial populations, and other loca-
tions where the trend of value is
downward, it Is essential that the
loss of value to accrue in the fu-
ture be reflected in current ap-
praisals.
Must Consider Age.
I'm determining reproduction
COSTS the influence of temporary con-
ditions causing high or low costs or
causing changes in costs should not
be recognized until such conditions
become established, proven and rela-
lively permanent.
I'VE must consider the effective |
age or economic age of the build
ing, as well as the number Of years
since it was built. Often very old |
buildings retain large portion of
their economic value. In many |
cases comparatively new buildings, |
because Of poor design or construc-
ton, are old soon after they be-
come occupied. The appraiser Is to
give his opinion as to whether or not |
the property is readily rentable at |
prevailing rates and must decide |
whether the condition Of the build |
ings warrants a loan for as long |
. term as Is or 10 years.
"As one Of the conditions Of the
loan Is that the property be tenant
able and in a good state Of preserva-
tion, and as provision for essential |
reconditioning is made in the amount |
of the loan, the appraiser is instructed |
to give rough estimates of the costs |
of repairs. The final corporation ap-
praisal, as determined by the State !
manager, values the property as If |
repaired
Attention has been called to the |
section of the act providing severe |
penalties for fraud in connection with |
appraisals and loans: Whoever |
makes any statement. knowing it to be |
false, or whoever wilfully ocervalues |
any security for the purpose of in
fluencing in any way the action of
the Home Owners Loan Corpora
tion upon any application, ad-
vance, discount, purchase, or repur-
chase agreement, or loan, under this