Tagged: hud requirements
Do new HUD requirements create a misleading appraisal?
Here is a little recap of the Appraiser Lunch last week.
Lunch was wonderful for those who couldn’t make it. It seemed that lunch was over and we all ended up in the parking lot talking for longer.
There seemed to be a consensus that we need some AMC regulation before the AMC’s do it. I think we would also like a reasonable fee study. Does anyone know a grad student who needs a research project? What would the cost be? If all AMC’s paid reasonable fees, we would probably love them despite the long lists of revisions, which in general are pushed to the extent of being unlawful. http://www.workingre.com/checkbox-chimps-and-review-appraisals/
The Arizona AMC Law states:
32-3601. Definitions
5. “Appraisal review” means the act of reviewing of the report that follows a review of an appraisal assignment or appraisal report in which a real estate appraiser forms an opinion as to the adequacy and appropriateness of the report being reviewed.
- “Review appraiser” means a person who engages in the activity of reviewing and evaluating the appraisal work of others from the perspective of an appraiser, generally for compensation as a separate skill. This includes the function of reviewing an appraisal report or a file memorandum setting forth the results of the review process.
32-3603
License or certificate use; exception A. All real estate appraisals and appraisal reviews performed on real property in this state shall be performed only by individuals licensed or certified in accordance with the requirements of this chapter.
Louisiana has a C & R battle on their hands with Coester suing them and claiming that the appraisal board is restricting trade by requiring reasonable fees. See more at http://www.workingre.com/facing-license-denial-coester-sues-virginia-board/. This lawsuit is in a way the epitome of the appraiser’s struggle to make a living. Can’t wait to see what happens. Coester claims that it is saving consumers money and not allowing them to pay low fees to appraisers will harm the public.
I think that AMC’s should go with the DSPS background check instead of all of them requiring different ones or at least going with North Carolina’s limit of 1 a year. I also like the requirement that they pay the appraiser with in 30 days. They all seem to want their appraisals back in 48 hours; maybe we should get paid with in 48 hours.
What is the Wisconsin Coalition of Appraisers up to?
Perhaps we can get a reply from Chad or someone else on the board.
Are you ready for next months change to the new and improved FHA handbook and guidelines?
For those who have not taken the time to read through the new hand book, here is a quick run down on the single family section with some of the things that stick out in bold letters. I just picked out some things that are new, more defined, things that you may have wondered about, disagreed with, or were never really sure about. You can also read the book at http://www.allregs.com/tpl/Main.aspx if you would like the info straight from the horse’s mouth. If you do FHA work you will have to read it eventually or take a class. There is also a section on minimum property requirements. It is absolutely wonderful that HUD has finally updated their handbook after so many years. It sounds like the start date is for loans that have had their HUD numbers assigned after September 14th.
While you are thinking about it you can ask the question of whether you are competent to perform an FHA appraisal? Read this blog post; http://appraisersblogs.com/appraisal/fha-vs-uspap-appraisers-caught-in-catch-22/
Since Ya’ll may not have time to read everything, I would like to point out an area that we may have to elaborate on since it will require two conflicting statements with in the FHA report, which may be considered misleading or at the least confusing.
The first is HUD’s statement of intended use, which states that the appraisal is only for mortgage insurance purposes solely for FHA.
Fannie Mae’s 1004 form states that the intended use is for the lender/client to evaluate the property for a mortgage finance transaction and the intended use is the lender/client. No modification, deletions, or additions are allowed.
HUD’S intended use and user.
Enter the name of the mortgagee/client that ordered and will receive the appraisal report.
The intended use of the appraisal is solely to assist FHA in assessing the risk of the property securing the FHA-insured mortgage (24 CFR 200.145(b)). FHA and the Mortgagee are the intended users of the appraisal report. The FHA Appraiser does not guarantee that the property is free from defects. The appraisal establishes the value of the property for mortgage insurance purposes only.
I thought I would throw in this from the 1004 also as far as what you cannot use as comparables.
8. I have not used comparable sales that were the result of combining a land sale with the contract purchase price of a home that has been built or will be built on the land.
- I identified the lender/client in this appraisal report who is the individual, organization, or agent for the organization that ordered and will receive this appraisal report.
The following portions in blue were taken from HUD’s publications. The bold portions are to help you more quickly identify if you want to read more. The portions in blue are my thoughts and observations.
Appliances
Definition
Real Property refers to the interests, benefits, and rights inherent in the ownership of physical real estate.
Personal Property refers to tangible property, other than Real Property, such as cars, recreational vehicles, stamps, coins or other collectibles.
ii. Standard
Cabinets and built-in appliances that are considered Real Property must be present and operational.
iii. Required Analysis and Reporting
The Appraiser must note appliances present in the house at the time of observation and indicate whether that appliance is considered Personal Property or Real Property. The Appraiser must operate all conveyed appliances and observe their performance.
The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if any conveyed appliances are inoperable.
It sounds like we are required to turn on all of the appliances and tell the lender if they do not work. This sounds like a possible law suit waiting to happen if there is a defect in something we turn on and we could be accused of breaking it.
(A) Party or 0 Lot Line Wall
(1) Standard A building constructed on or next to a property line must be separated from the adjoining building by a wall extending the full height of the building from the foundation to the ridge of the roof.
(2) Required Analysis and Reporting The Appraiser must note if the party or lot line wall does not extend to the roof or beyond.
You will have to look for a wall in the attic for a duplex. How often does that happen?
Non-Residential Use of Property
(1) Standard The non-residential portion of the total floor area may not exceed 49 percent. Any non-residential use of the Property must be subordinate to its residential use, character and appearance. Non-residential use may not impair the residential character or marketability of the Property. The non-residential use of the Property must be legally permitted and conform to current zoning requirements.
(2) Required Analysis and Reporting
The Appraiser must calculate the non-residential portion of any residential Property. Storage areas or similar spaces that are integral parts of the non-residential portion must be included in the calculation of the non-residential area. The Appraiser must comment on any non-residential use within the Property and state the percentage of the total floor area that is utilized as non-residential. The Appraiser must report whether the non-residential usage is legal and in compliance with current zoning requirements. The Appraiser must contact the Mortgagee if the non-residential portion of the Property exceeds 49 percent.
The Appraiser must notify the Mortgagee if, upon observation, it appears that an Encroachment affects the subject Property.
Good to know when the house has a workshop or something else odd in it. Does this include the basement?
(7) Stationary Storage Tanks The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if the subject property line is located within 300 feet of an above ground or subsurface stationary storage tank with a capacity of 1,000 gallons or more of flammable or explosive material. This includes domestic and commercial uses as well as automotive service station tanks.
Look for gas stations or business with their own fuel.
v. New Construction Site Analysis
The Appraiser must obtain a fully executed form HUD-92541, Builder’s Certification of Plans, Specifications, and Site, signed and dated no more than 30 Days prior to the date the appraisal was ordered, before performing the appraisal on Proposed Construction, Properties Under Construction or Properties Existing Less than One Year.
The Appraiser must review the form and analyze and report any discrepancies between the information provided by the builder and the Appraiser’s observations.
You cannot do new without the form.
FHA case number at the top of the upper right hand corner to correspond with the XML label
In most software packages, this is formatted as an additional file number.
Property Address
If the property’s legal location is different from the property’s mailing address (for instance, the property is located in a different municipality or in an unincorporated area) explain this in the appraisal report.
Assessor’s Parcel #
If more than one parcel number is applicable, each must be listed, separated by a semicolon.
Listing Activity
Report all relevant listing activity, including any prior listings within the last three years.
Enter the listing date, offering price, and terms. Report changes to prices and terms, with the dates of those changes.
Sales Contract
Explain the results of the analysis (terms and conditions) of the contract for sale or why the analysis was not performed.
The analysis may include a reference to the number of pages contained in the contract for sale provided.
Identify the source(s) used, price(s) and date(s) of current or prior listings.
The appraiser is instructed to contact the mortgagee/client if the seller is someone other than the owner of record, as the property may not be eligible for FHA financing if it involves Property Flipping (resale in less than 90 Days).
Date of Contract
This is the date when all parties have agreed to the terms of, and signed the contract.
Our contracts have a date at the top and all subsequent amendments and notices reference the date of the contract. It is not like that in every state. FHA wants it to be the date that it becomes an enforceable contract.
Neighborhood Section This section reflects the area surrounding the subject property.
Location
o urban – relates to a city
o suburban – relates to an area adjacent to a city
o rural – relates to the country or beyond the suburban area
These are just misleading definitions and someone needs to redefine these terms. This would make Stoughton and Edgerton an urban area and Oregon and Waunakee would be a rural area. The entire township of Fitchburg would be a suburban area. The township of Dunkirk would be a suburban area. Am I the only one who sees this?
Present Land Use
Enter the built-up percentage – the percentage of available land that has been improved.
Land such as a state park would not be considered available land.
Neighborhood Characteristics
if the neighborhood is fully developed, select the “Stable” box.
In reality this would be slow not stable.
Neighborhood Price and Age
The range should include the minimum and maximum ends of the range, excluding outliers.
Neighborhood Description
o level of maintenance and condition of housing
o housing styles, ages, sizes, etc.
o land uses
o proximity to employment and amenities, including travel distance and time to local employment sources and community amenities
o employment stability, in terms of variety of employment opportunities and industries
o overall appeal of the neighborhood as compared to competitive neighborhoods in the same market
o convenience to shopping with respect to distance, time and required means of transportation
o convenience to schools in terms of the distance and time for travel to school
What to comment on.
Site dimensions
List all dimensions of the site beginning with the frontage.
If the shape of the site is irregular, show the boundary dimensions (e.g., 85′ X 150′ X 195′ X 250′), or attach a property survey, site plan or plat, or legal description with the comment “see attached.”
Zoning Description
Describe what the specific classification means.
Include a general statement describing what the zoning permits.
For example:
o R-1 = Residential-Single Family, one acre minimum site size;
o R-100 = Residential Single Family, 10,000 sf minimum site size;
o R6 = Residential Single Family, minimum 60 feet frontage, 6,000 sf minimum site size;
o R5 = Single Family Residential, five Dwelling Units per acre; or
o R4 = One- to Four-Unit Residences and Flats.
Attic requirements
Observe the interior for insulation, ventilation (fan, vent, or window), and the condition of the roof structure. Note any deficient materials, leaks or readily observable evidence of significant water damage, structural problems, previous fire damage, exposed and frayed wiring, or any other health and safety deficiencies. If any deficiencies exist, condition the appraisal on their repair or inspection and prepare the appraisal as “subject to repairs” and/or “subject to inspection.”
Crawl Space requirements
Check the distance from the bottom of the floor joists to the ground.
Check to ensure that the space is adequate for maintenance and repair.
Check for insulation and ventilation or for any structural problems.
Check to make sure that the support beams are intact and of structural soundness.
Dirt Floor in basement
For a dirt basement floor, determine whether such a property is typical for the area and is readily marketable.
If so, it is not required that a concrete basement floor be installed.
Mechanical equipment, however, must be located on a concrete pad.
Exterior Surface
If it is a combination of materials, show the predominant portion first and rate the observed condition.
Roof Inspections
Note any evidence of deterioration of roofing materials (missing tiles, shingles, flashing).
Deteriorated roofing materials include those that are worn, cupped, or curled.
If the roof is otherwise unobservable, look for telltale signs of roof problems on the interior surfaces, such as damage to or water stains on the walls or ceiling of a room or closet.
Appraisers must note in the report if they could not adequately observe the entire roof area and state which area(s) were unobservable.
Storm Windows
Describe the storm sash material or state if the windows are double glazed, etc., or a combination of the two.
Car Storage
Tandem Parking
Some properties or condominium parking areas have parking spaces or garage spaces that allow cars to be parked “in tandem,” i.e. one car is parked in front of the other, but the rear car must be moved to allow access and egress for the interior car. Local market conditions and research will indicate the desirability of this feature. The appraiser must provide an explanation of the feature, the level of market acceptance or preference, and the Contributory Value of the combined space.
Driveway
A single lane width driveway is considered a one-car driveway.
Garage
Enter the number of cars the structure can accommodate.
So a driveway cannot be tandem, but a garage can.
Appliances
An entry in a box means that the item was considered part of the real estate and is included in the value.
No appliances unless they are built-in.
The Grid
It sounds like we have to explain every adjustment. The check box monkeys will love this.
Explanation is required for any time adjustments.
Differences in quality resulting in adjustments must be explained. An explanation must be specific. It is not sufficient to simply state that “adjustments for quality are based on observations” or “based on descriptions provided in MLS.”
Adjustments may also be warranted for interior construction quality and if so, they must be explained. For example, the second floor of a one-and a half-story house finished with lower grade materials and finish compared to the first floor.
If the market demonstrates an adjustment strictly for age, apply and explain.
Differences in condition resulting in adjustments must be explained. The explanation must be specific. It is not sufficient to simply state that “adjustments for condition are based on observations” or “based on descriptions provided in MLS.”
If the appraisal is completed “subject to repairs,” the subject’s condition rating, and corresponding adjustments, must be based on the repairs as completed.
Above-Grade Room Count
The first line is for bedroom and/or total count differences (if appropriate)
The second line adjustment is for bathroom count differences (if appropriate).
Explain any adjustment to a comparable property in both GLA and room count, bedroom count and/or bathroom count.
If the appraiser does not have a credible data source for the quantity of finished basement area, enter a 1 for finished area and explain in the addendum.
Effective Date of Prior Sale Data Source
Enter the date the data was published or updated by the source. For example, the local MLS may update their database multiple times during the week or month whereas property transfers recorded at the local land records office may take six or eight weeks after settlement. The property transfer records may have an effective date that is eight weeks earlier than the appraisal date and the MLS data is within one week of the appraisal date.
Analysis of prior sale or transfer history of subject and comparable properties
Report the date(s) of prior sale(s) or transfer(s) of the subject that occurred within three years of the effective date of the appraisal.
Report the date(s) of prior sale(s) or transfer(s) of each comparable that occurred within three years of the effective date of the appraisal. (FHA Specific Requirement).
Three year transfer history for comps. I cannot think of a scenario where what a comp sold for 2 years ago would have to do with today.
Report prior transfers regardless of conveyance type or consideration amount. If the prior transfer or offering is not relevant to the current transaction or offering, explain why.
Prior sale of the lot
For new construction, include any prior transfers of the land as vacant.
If the properties are located in a “non-disclosure state,” the appraiser is responsible for reporting the information that is reasonably obtainable.
Report the analysis of prior sale or transfer history of the subject and comparable properties.
The appraiser must evaluate the relevancy of prior transfers to the current sale or offering of the comparable.
The appraiser must describe the difference between recent transfers versus the current sale or offering, and the effect on the appraisal problem.
The appraiser must provide an analysis of the prior sale or transfer history of the subject property and comparable properties in the report. Simply reporting a transaction is not a sufficient analysis or explanation to the reader.
FHA recognizes the limitations of form reports and the UAD format. If multiple prior transactions exist for the same property within three years prior to the effective date of the appraisal, the appraiser must analyze and report those prior transactions.
Summary of Sales Comparison Approach
Explain the comparable selection and any necessary explanation of the adjustments.
Explain any adjustments exceeding guidelines.
Explain which comparable sale or sales is/are given most weight or consideration, and why.
Explain the thought process used to reconcile the range of adjusted sale prices into a single indication of value. The summary should generally reflect on the degree of compatibility of each comparable sale to the subject. This may include discussion of the relative size of gross and net adjustments, date of sale, location, design, or other pertinent characteristics.
The value indicated by the sales comparison approach must be consistent with the appraiser’s reasoning.
Blank line in cost approach
Enter the marketing costs here. Also, if applicable, identify and include impact fees.
Profile: Making $300,000 a Year Appraising, How to Make Six Figures Appraising and How to Make Six Figures Appraising (Part 2).
TRID, AMC regulation effects,
I was thinking of starting an “Appraiser Ride” page on the “Wisconsin Appraiser Blog”. I envision it looking something like this. Send your photos and let me know If you want your name on it.
There have been several developments since my last post. HUD has changed the deadline for using the new handbook to September 14, 2015. HUD decided that there are so many changes happening in the mortgage industry that it might be too much for lenders.
The Consumer Financial Protection Bureau (CFPB) introduced new Integrated Disclosure rules that amend existing requirements for mortgage disclosures:
Effective with RESPA applications received August 1, 2015, The Good Faith Estimate and Initial Truth in Lending Disclosure will be replaced with the “Loan Estimate” Disclosure. The HUD-1 Settlement Statement and Final Truth in Lending Disclosure will be replaced with the “Closing Disclosure”.
| What is the Integrated Disclosure Rule? | |
| The CFPB was tasked with simplifying the loan process for consumers. In an effort to simplify the loan process the CFPB is combining the Good Faith Estimate (GFE) and initial Truth In Lending (TIL) disclosure into one document which is called the “Loan Estimate”. In addition to combining the initial disclosures; the Final TIL, Itemization of Amount Financed, and HUD Settlement Statement are also being combined into a single document titled the “Closing Disclosure”. | |
| When does the Integrated Disclosure rule take effect? | |
| The new disclosures are required for loans with a RESPA application date of August 1, 2015. If a loan is disclosed with the current GFE/TIL, the loan must close with the current GFE/TIL/HUD. Lenders are not permitted to begin using the forms before August 1st, 2015.
This may have been extended to October. |
|
| Which transactions are covered under the new TILA-RESPA Integrated Disclosures rule? | |
| The TILA-RESPA rule applies to most closed-end consumer credit transactions secured by real property. Specifically, the TILA-RESPA rule does not apply to HELOCs, reverse mortgages or mortgages secured by a mobile home that is not permanently attached to real property (i.e., land). | |
| When does the Closing Disclosure have to be delivered to the borrower? | |
| The Closing Disclosure must be delivered to the borrower at least 3 business days prior to closing. | |
| What triggers another 3 day waiting period when a revised Closing Disclosure is issued? | |
|
|
| What is the process if circumstances change on the transaction that will impact the Closing Disclosure? | |
| All parties must notify Closing Department immediately so it can be determined if the changes require a new 3 day waiting period or if the revised Closing Disclosure can be delivered at closing. | |
What does this mean for Appraisers?
The new loan estimate is not allowed to increase and they are required to make a distinction between an appraisal and an AVM or HVE. The loan estimate is not allowed to increase compared to the closing disclosure. If the lender under estimates the cost of the appraisal, they may want you or the AMC to eat the difference. Since they have to have the closing disclosure 3 days prior to consummation of the loan, getting the appraisal done the day before closing will not work. There may be more rush appraisals, even though AMC’s have turned all appraisals into rush appraisals. Remember when we were paid a rush fee to get an appraisal done in 48 hours? Now that is the industry standard imposed by AMC’s. Read more at http://www.wolterskluwerfs.com/tila-respa/frequently-asked-questions.aspx
For those who have AMC regulations things are happening.
First Enforcement of C&R Fee Provision: Louisiana Makes History
by Isaac Peck, Associate Editor
Nearly five years after Dodd-Frank set forth rules regarding Customary & Reasonable fees (C&R) for appraisers, an agreement last week between a state board and an Appraisal Management Company (AMC) is the first evidence of enforcement. The bottom line for appraisers is that they may be finally on their way back to customary and reasonable fees.
On June 4, 2015, the Louisiana Real Estate Appraisers Board (LREAB) issued a Stipulations and Order Memorandum (SOM) wherein Coester Appraisal Management Group, also known as Coester VMS, offers no admission of guilt but agrees to follow the current Louisiana fee schedule for a period of 12 months and pay $5,000 in administrative costs. Coester also will submit Quarterly reports to the Board for a period of 12 months, which list “all appraisal orders in Louisiana, the fee paid and the date payment was made to the appraiser.”
In the Final Order obtained by WRE under the Freedom of Information Act, Coester agrees not to contest the case while simultaneously alleging that, “it (Coester) complied with the federal law, and as such, it was in compliance with Louisiana Law.” In contrast, the Louisiana Board alleges that “Coester Appraisal Management Group did not use established fees set by an objective third party or use the factors set forth” in Louisiana law, in determining fees paid to appraisers.
Tammie Daugherty posted this on LinkedIn
This information was provided by the Network of Appraisal Organizations. It includes just over 20 state appraiser organizations of which my appraiser association, NCREAA and ICAP are members.
Here is the Facebook page for the Network of State Appraisal Organizations. If your state appraiser organization is interested in joining us to unite as one strong voice of appraisers, you may reach the network organizer Peter Gallo at (704)752-6252 ext 101, or at peterg@homesightllc.com.
https://www.facebook.com/stateappraisalassociationworkgroup?fref=ts
✦ILLINOIS HAS CANCELLED OVER 70 REGISTRATIONS FOR AMC’s DUE TO NON COMPLIANCE✦
So now the AMC’s know you don’t mess around with Illinois. 🙂
The State of Illinois has cancelled AMC registrations for over 70 companies effective immediately because of non-compliance with the AMC Act regarding Bond Requirements.
Section 1452.80 Bonding Requirements
The bond required by Section 50 of the Act shall be for a term concurrent with the term of the registration, commencing with registrations issued by the Division with an expiration date of December 31, 2014 and concurrent with the 2-year term of each renewed registration thereafter. This provision does not prohibit the registrant from maintaining a continuing bond during any registration term. Failure to maintain the bond and to provide the Department with written proof of the bond, upon request, shall result in cancellation of the license without hearing.
ICAP has been asked to notify appraisers that they can’t accept work from an unregistered AMC. The following is a list of the current registered AMC’s which was posted on the States website.
http://www.idfpr.com/realestate/AMCRegistrants.pdf
The State will allow appraisers to complete any appraisal assignments received from an AMC that has been removed from the list up through today, May 8th. The link below is the list of AMC’s who have had their registration cancelled. I would strongly suggest you forward a copy of this alert to any AMC you work with if their name is on this list.
http://www.idfpr.com/realestate/NONCOMPLIANTAMCsConcurrentBondIssue.pdf
The last link below is a copy of the letter the State sent to all AMC’s who hadn’t provided their updated bond information when they renewed their license this year. This letter was sent on March 30th. It warns those AMC’s that they must comply by May 1st or risk cancellation of their registration.
http://www.idfpr.com/realestate/3302015ConcurrentBondEnforcementLetter.pdf
This does not mean that an AMC who has had their license cancelled cannot reapply with the State.
AQB Adopts New State Background Check Requirements
The Appraiser Qualifications Board on March 20 adopted significant changes to the background check requirements of the Real Property Appraiser Qualification Criteria. The new requirements are modifications to original background check requirements adopted by the AQB in December 2011, which never took effect. The new requirements will take effect Jan. 1, 2017.
FHA Single Family Housing Appraisal Report and Data Delivery Guide
Here is the New Field by Field handbook for FHA HUD Appraisals similar to Appendix D
http://portal.hud.gov/hudportal/documents/huddoc?id=SFH_POLI_APPR_RPT_FIN.PDF
Here are a few comments from Linked in Discussing the new FHA requirements and possible legal ramifications. The full discussion can be found in the USPAP Group at:
Check out the photo requirements because FHA has changed the requirements to include original photos of listings and rentals.
(d) Adjusting Comparable Properties
(i) Standard
Calculation of the Contributory Value includes methods based on the:
direct sales comparison approach;·
cost approach; and·
income approach.·
The provision in the HUD Handbook state the appraiser is also responsible for reviewing and analyzing those “legal documents” and reporting the results of that analysis in the appraisal report. Why would anyone want to accept that liability?
Clearly, this is a mistake (made by someone authoring this document) and one that should be brought to the attention of HUD prior to 6/15/2015. While HUD wants applicable legal documents reviewed (building lease, CC&R’s, etc.), they would not expect review of all things in the loan file that could be classified as a legal document.
The 1004 form makes a rather clear statement:
STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS: The appraiser’s certification in this report is
subject to the following assumptions and limiting conditions:
1. The appraiser will not be responsible for matters of a legal nature that affect either the property being appraised or the title to it, except for information that he or she became aware of during the research involved in performing this appraisal. The appraiser assumes that the title is good and marketable and will not render any opinions about the title.
Good point, effectively, HUDs Guidelines conflict with their required forms. But you have to look at this from a litigation perspective. Which takes priority, the form being used and the limiting conditions stated in the form or the clients guidelines and clients scope of work to be performed by the appraiser.
In this case, you will have to include a statement that you did not comply with HUD Guidelines, because you are not permitted to modify the A&LC’s.
One other thought, the guideline says the appraiser will review, analyze and factor into the appraisal “any legal documents” in the loan file. Its not specific to value related. This is poorly written and something that needs to be brought to HUD’s attention. Throughout the guidelines, HUD uses the phrases “the appraiser must” or “the appraiser will” … which also have legal consequences and should be addressed in the scope of work statement in your report.
Some are guidelines and some are mandates. for example: the line 10% net 15% and gross 25% are FHA guidelines however there is an exception if the market data available supports higher adjustments the appraiser can make them and comment in the appraisal. Some are mandates such as: The appraiser must verify the functionality of the utilities and the appraiser must make the report subject to correction of defective paint surfaces to which there is no exception to this mandate. It appears we all need to become more litigious minded like you Patrick and the first step is learning the guidelines and mandates.
New HUD Handbook 4000.1 has finally come out after 16 years
New HUD Handbook 4000.1 has finally come out after 16 years of the old inadequate book that required searching for applicable Mortgagee letters we can finally get all our questions answered in one place. This is supposed to be effective in June.
The only problem is that to some degree it requires us to be an Appliance operator, Electrician, Geologist, Electrical Transmission line Analyst, Aviation Flight Path Analyst, Well driller, Pipe line Analyst, Engineer, Chemist, Soil Analyst, Septic expert and it sounds like FHA wants us to look in the freezer, cook something in the microwave and oven, do a load of laundry, have a drink of water, and wash the dishes while we are there.
They want us to use list prices to determine a market condition adjustment.
Seems like some of these things will require more Mortgagee letters to understand. Here are a few things that I thought stood out. You can follow the link below to see some info. Click on Handbooks to see the whole thing. Most of the appraiser stuff starts on page 421. Here are the answers to all of your HUD questions.
Handbook 4000.1 421
Publish Date: 03/18/2015 | Effective Date: 06/15/2015
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/handbook_4000-1
The Appraiser must obtain all of the following from the Mortgagee before beginning an appraisal:
a complete copy of the executed sales contract for the subject, if a purchase transaction;
the land lease, if applicable;
surveys or legal descriptions, if available;
any other legal documents contained in the loan file; and
a point of contact and contact information for the Mortgagee so that the Appraiser can communicate any
noncompliance issues.
(B) Standard
The Appraiser must identify defective conditions.
Defective Conditions Requiring Repair
The Appraiser must identify defective conditions that are curable and will make the Property comply with
HUD’s MPR, and provide an estimated cost to cure.
- Inspection by a Qualified Individual or Entity
If the Appraiser cannot determine that a Property meets FHA’s MPR or MPS, an inspection by a qualified individual
or Entity is required.
Conditions that require an inspection by qualified individuals or Entities include:
- standing water against the foundation and/or excessively damp basements;
- hazardous materials on the site or within the improvements;
- faulty or defective mechanical systems (electrical, plumbing or heating/cooling);
- evidence of possible structural failure (e.g., settlement or bulging foundation wall, unsupported floor joists, cracked
masonry walls or foundation);
- evidence of possible pest infestation;
- leaking or worn-out roofs; or
- any other condition that in the professional judgment of the Appraiser warrants inspection.
Required Analysis and Reporting
The Appraiser must observe, analyze and report defective conditions and must also provide photographic documentation
of those conditions in the appraisal report.
If inspection is required, the Appraiser must cite the reason for requiring an inspection.
- Minimum Property Requirements and Minimum Property Standards
MPR and MPS form the basis for identifying the deficiencies of the Property that the Appraiser must note within the
appraisal report.
- Legal Requirements
(A)Real Estate Entity
The Appraiser must contact the Mortgagee if the subject Property is not a single, marketable real estate entity, and/or does
not consist of a primary plot with a secondary plot contributing to the use and marketability of the Property as a single
marketable real estate entity.
There are also definitions for:
Planned Unit Development
Leasehold Interests
Reverse Mortgage (HECM) Requirements
- Legal and Land Use Considerations
(A)Party or Lot LineWall
(1) Standard
A building constructed on or next to a property line must be separated from the adjoining building by a wall extending
the full height of the building from the foundation to the ridge of the roof.
(2) Required Analysis and Reporting
The Appraiser must note if the party or lot line wall does not extend to the roof or beyond.
B)Non-Residential Use of Property
(1) Standard
The non-residential portion of the total floor area may not exceed 49 percent.
Any non-residential use of the Property must be subordinate to its residential use, character and appearance. Non-residential
use may not impair the residential character or marketability of the Property. The non-residential use of the Property must be
legally permitted and conform to current zoning requirements.
(2) Required Analysis and Reporting
The Appraiser must calculate the non-residential portion of any residential Property. Storage areas or similar spaces that are
integral parts of the nonresidential portion must be included in the calculation of the non-residential area.
The Appraiser must comment on any non-residential use within the Property and state the percentage of the total floor area
that is utilized as non-residential. The Appraiser must report whether the non-residential usage is legal and in compliance with
current zoning requirements.
The Appraiser must contact the Mortgagee if the non-residential portion of the Property exceeds 49 percent.
(2) Airport Noise and Hazards
The Appraiser must identify if the Property is affected by noise and hazards of low flying aircraft because it is near an airport.
The Appraiser must review airport contour maps and analyze accordingly. The Appraiser must determine and report the
marketability of the Property based on this analysis.
(3) Special Airport Hazards
The Appraiser must identify if the Property is located within a Runway Clear Zone (also known as a Runway Protection Zone)
at a civil airport or Clear Zone
military airfield and consider the effect of the airport hazards on the marketability when valuing the subject Property.
For Properties located in an Accident Potential Zone 1 (APZ 1) at military airfields, the Appraiser must require compliance
with the Department of Defense (DoD) Guidelines and a buyer’s acknowledgement.
(a) Existing Dwelling
The Appraiser must condition the appraisal on the Borrower’s acknowledgment of the hazard.
(b) Proposed Construction, Under Construction, and Existing Less than
One Year
The Appraiser must note that the Property is ineligible for FHA insurance and notify the Mortgagee.
(4) Proximity to High Pressure Gas Lines
The Appraiser must identify if the dwelling or related property improvement is near high-pressure gas or liquid petroleum
pipelines or other volatile and explosive products, both aboveground and subsurface. The Appraiser must determine and
report the marketability of the Property based on this analysis. The Appraiser must notify the Mortgagee of the deficiency
of MPR or MPS if the Property is not located more than 10 feet from the nearest boundary of the pipeline Easement.
(7) Stationary Storage Tanks
The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if the subject property line is located within
300 feet of an aboveground or subsurface stationary storage tank with a capacity of 1,000 gallons or more of flammable or
explosive material. This includes domestic and commercial uses as well as automotive service station tanks.
The Appraiser must note whether there is safe pedestrian access and Adequate Vehicular Access to the site and analyze any
effect on value or marketability.
The Appraiser must report evidence of a permanent Easement.
The Appraiser must ask if a maintenance agreement exists and comment on the condition of the private road or lane.
- New Construction Site Analysis
The Appraiser must obtain a fully executed form HUD-92541, Builder’s Certification of Plans, Specifications, and Site,
signed and dated no more than 30 Days prior to the date the appraisal was ordered, before performing the appraisal on
Proposed Construction, Properties Under Construction or Properties Existing Less than One Year.
The Appraiser must review the form and analyze and report any discrepancies between the information provided by the
builder and the Appraiser’s observations.
(A)Definition
Excess Land refers to land that is not needed to serve or support the existing improvement. The highest and best use of the
Excess Land may or may not be the same as the highest and best use of the improved parcel. Excess Land may have the
potential to be sold separately.
Surplus Land refers to land that is not currently needed to support the existing improvement but cannot be separated from
the Property and sold off. Surplus Land does not have an independent highest and best use and may or may not contribute
to the value of the improved parcels.
(B)Required Analysis and Reporting
The Appraiser must include the highest and best use analysis in the appraisal report to support the Appraiser’s conclusion of
the existence of Excess Land. The Appraiser must include Surplus Land in the valuation.
If the subject of an appraisal contains two or more legally conforming platted lots under one legal description and ownership,
and the second vacant lot is capable of being divided and/or developed as a separate parcel where such a division will not
result in a non-conformity in zoning regulations for the remaining improved lot, the second vacant lot is Excess Land.
The value of the second lot must be excluded from the final value conclusion of the appraisal and the Appraiser must provide
a value of only the principal site and improvements under a hypothetical condition.
(D)Modular Housing
(1) Definition
Modular Housing refers to Structures constructed according to state and local codes off-site in a factory, transported to a
building lot, and assembled by a contractor into a finished house. Although quality can vary, all of the materials – from
framing, roofing and plumbing to cabinetry, interior finish and electrical – are identical to what is found in comparable quality
conventional “stick-built” housing.
(2) Required Analysis and Reporting
The Appraiser must treat Modular Housing the same as stick-built housing, including reporting the appraisal on the same form.
The Appraiser must select and analyze appropriate comparable sales, which may include conventionally built housing,
Modular Housing or Manufactured Housing.
(E) Identifying an Accessory Dwelling Unit
(1) Definition
An Accessory Dwelling Unit (ADU) refers to a habitable living unit added to, created within, or detached from a primary
one-unit Single Family dwelling, which together constitute a single interest in real estate. It is a separate additional living
unit, including kitchen, sleeping, and bathroom facilities.
(2) Required Analysis and Reporting
As part of the highest and best use analysis, the Appraiser must make the determination to classify the Property as a Single
Family dwelling with an ADU, or a two-family dwelling. The conclusion of the highest and best use analysis will then
determine the classification of the Property and the analysis and reporting required.
An ADU is usually subordinate in size, location and appearance to the primary Dwelling Unit and may or may not have
separately metered utilities or separate means of ingress or egress. The Appraiser must not include the living area of the
ADU in the calculation of the Gross Living Area (GLA) of the primary dwelling. The Appraiser must notify the Mortgagee
of the deficiency in MPR or MPS if more than one ADU is located on the subject Property.
Additional Manufactured (F) Home on Property
The Appraiser may consider a Manufactured Home to be an ADU if it meets the highest and best use and FHA requirements.
The Appraiser may value a Manufactured Home on the Property that physically or legally may not be used as a dwelling and
does not pose any health and safety issues by its continued presence as a storage unit.
(G) Leased Equipment, Components, and Mechanical Systems
The Appraiser must not include the value of leased mechanical systems and components in the Market Value of the subject
Property. This includes furnaces, water heaters, fuel or propane storage tanks, solar or wind systems (including power purchase
agreements), and other mechanical systems and components that are not owned by the property owner. The Appraiser must
identify such systems in the appraisal report.
- Partially Below-Grade Habitable Space
(A)Definition
Partially Below-Grade Habitable Space refers to living area constructed partially below grade, but has the full utility of GLA.
(B)Required Analysis and Reporting
The Appraiser must report the design and measurements of the subject, the market acceptance or preference, how the levels and
areas of the dwelling are being calculated and compared, and the effect that this has on the analysis. Regardless of the
description of the rooms, bedrooms or baths as above grade or below grade, the Appraiser must analyze all components of the
subject Property in the valuation process.
- Appliances
- Definition
Real Property refers to the interests, benefits, and rights inherent in the ownership of physical real estate.
Personal Property refers to tangible property, other than Real Property, such as cars, recreational vehicles, stamps, coins or other
collectibles.
- Standard
Cabinets and built-in appliances that are considered Real Property must be present and operational.
iii. Required Analysis and Reporting
The Appraiser must note appliances present in the house at the time of observation and indicate whether that appliance is
considered Personal Property or Real Property. The Appraiser must operate all conveyed appliances and observe their performance.
The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if any conveyed appliances are inoperable.
Central air conditioning is not required but, if installed, must be operational. If the air conditioning system is not operational,
the Appraiser must indicate the level of deferred maintenance, analyze and report the effect on marketability, and include the
cost to cure.
The Appraiser must examine the water heater to ensure that it has a temperature and pressure-relief valve with piping to safely
divert escaping steam or hot water.
- Limited Required Repairs
The Appraiser must limit required repairs to those repairs necessary to:
maintain the safety, security and soundness of the Property;
preserve the continued marketability of the Property;
(B) Standard
When an Individual Water Supply System is present, water quality must meet the requirements of the health authority with
jurisdiction. If there are no local (or state) water quality standards, then water must be potable, which may be demonstrated by
compliance with the current EPA Manual of Individual and Non-Public Water Supply
Systems.
A pressure tank with a minimum capacity of 42 gallons must be provided.
However, pre-pressured tanks and other pressurizing devices are acceptable if delivery between pump cycles equal or exceed
that of a 42-gallon tank. Tanks must be equipped with a clean-out plug at the lowest point and a suitable pressure relief valve.
(2) Required Analysis and Reporting
The Appraiser must note any readily observable deficiencies regarding the well and require test or inspection if any of the following apply:
- the water supply relies upon a water purification system due to the presence of contaminates;
- corrosion of pipes (plumbing);
- areas of intensive agricultural uses within one quarter mile;
- coal mining or gas drilling operations within one quarter mile;
- a dump, junkyard, landfill, factory, gas station, or dry cleaning operation within one quarter mile; or
- an unusually objectionable taste, smell, or appearance of well water.
The Appraiser must also be familiar with the minimum distance requirements between private wells and sources of pollution and,
if discernible, comment on them. The Appraiser is not required to sketch or note distances between the well, property lines,
septic tanks, drain fields, or building Structures but may provide estimated distances where they are comfortable doing so.
When available, the Appraiser should obtain from the homeowner or Mortgagee a copy of a survey or other documents
attesting to the separation distances between the well and septic system or other sources of pollution.
- Photograph, Exhibits and Map Requirements
The Appraiser must include a legible street map showing the location of the subject and each of the comparable properties,
including sales, rentals, listings, and other data points utilized. If substantial distance exists between the subject and
comparable properties, additional legible maps must be included.
The Appraiser must include a building sketch showing the GLA, all exterior dimensions of the house, patios, porches, decks,
garages, breezeways, and any other attachments or out buildings contributing value. The sketch must show “covered” or
“uncovered” to indicate a roof or no roof (such as over a patio). The Appraiser must show the calculations used to arrive at the
estimated GLA. The Appraiser must provide an interior sketch or floor plan for Properties exhibiting functional obsolescence
attributable to the floor plan design.
Front and rear at opposite angles to show all sides of the dwelling
Improvements with Contributory Value not captured in the front or rear photograph
Street scene photograph to include a portion of the subject site
For New Construction, include photographs that depict the subject’s grade and drainage
For Proposed Construction, a photograph that shows the grade of the vacant lot
Subject Property
Interior
Kitchen, main living area, bathrooms, bedrooms
Any other rooms representing overall condition
Basement, attic, and crawl space
Recent updates, such as restoration, remodeling and renovation
For two- to four-unit Properties, also include photographs of hallways, foyers, laundry rooms and other common areas
Comparable Sales, Listings, Pending Sales, Rentals, etc.
Front view of each comparable utilized
Photographs taken at an angle to depict both the front and the side when possible
Multiple Listing Service (MLS) photographs are acceptable to exhibit comparable condition at the time of sale. However,
Appraisers must include their own photographs as well, to document compliance
Subject Property Deficiencies
Photographs of the deficiency or condition requiring inspection or repair Condominium Projects
Additional photographs of the common areas and shared amenities of the Condominium Project
- Intended Use and Intended Users of Appraisal
The intended use of the appraisal is solely to assist FHA in assessing the risk of the Property securing the FHA-insured
Mortgage (24 CFR § 200.145(b)).
FHA and the Mortgagee are the intended users of the appraisal report.
The FHA Appraiser does not guarantee that the Property is free from defects. The appraisal establishes the value of the
Property for mortgage insurance purposes only.
Standard
The Appraiser must utilize Arm’s Length Transactions for comparable properties except when there is evidence that REO
sales or short sale/Pre- Foreclosure Sale (PFS) transactions are so prevalent that normal Arm’s Length Transactions are not
present or supported by the market trend.
A transaction involving a foreclosure transfer to a mortgagee is not evidence of the Market Value, and is not a valid type of
comparable sale for an FHA-insured Mortgage.
The common types of property transfers listed below require investigation and analysis to ensure that they meet the
definition of an Arm’s Length Transaction:
REO sale – transfer from mortgagee to new owner;
short sale/PFS;
estate sale;
court ordered sale;
relocation sale; and
flip transactions.
The Appraiser must include a minimum of two active listings or pending sales on the appraisal grid (in addition to at least
three recently settled sales).
For active listings or pending sales, the Appraiser must:
ensure they are market tested and have reasonable market exposure to avoid the use of overpriced properties as comparable properties;
use the actual contract purchase price, or, when not available, adjust comparable properties to reflect listing to sale price ratios;
include the original list price, any revised list prices, and calculate the total Days on Market (DOM). The Appraiser must
provide an explanation for the DOM that does not approximate periods reported in the “Neighborhood” section of the
appraisal reporting form;
reconcile the Adjusted Values of active listings or pending sales with the Adjusted Values of the settled sales provided; and
if the Adjusted Values of the settled comparable properties are higher than the Adjusted Values of the active listings or
pending sales, determine if a Market Condition Adjustment is appropriate.
Wisconsin Appraiser 