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.

1. 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.

1. 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.

1. 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

1. 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.

1. 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.

1. 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.

1. Appliances
2. 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.

1. 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.

1. 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.

1. 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

1. 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.