The FHA and VA Appraiser: Thriving and Surviving

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The FHA and VA Appraiser Thriving and Surviving

Welcome toOrganization

• Appraisal Basics

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Instructor Name_at_email.edu
Your Instructor Today is
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Chapter 1

• The FHA An Overview

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Objectives

• Define FHA and its programs
• Demonstrate an understanding of the FHAs history
  and its role in society
• Recognize lender risk based on the programs down
  payment requirements and properties that qualify
  based on maximum/minimum loan amount

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Terms to Remember

• FHA
• HUD
• Manufactured Home
• Mortgage

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The Federal Housing Administration (FHA)

• Government agency that provides mortgage
  insurance on loans made by FHA-approved lenders
• Insures mortgages on single-family and
  multifamily homes, including manufactured homes
• Has insured mortgages on nearly 37 million
  properties since its inception in 1934

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FHA Mortgage Insurance

• Provides lenders with protection in the event of
  default
• FHA will pay a claim to the lender if a default
  occurs
• Loans must meet certain requirements established
  by FHA to qualify for this insurance

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Through the Decades A History of FHA
1934 Congress created the FHA
1940s Helped finance military housing and homes for returning veterans and their families after the war
1950s, 1960s, 1970s Helped spark production of many privately-owned apartments for elderly, disabled, and lower-income Americans In the 1970s, FHAs emergency financing kept cash-strapped properties afloat In 1965, FHA became part of HUD
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Through the Decades A History of FHA
cont.
1980 Steadied falling home prices Made it possible to get financing when recession prompted private mortgage insurers to pull out of oil-producing states
2000 By 2001, nations homeownership soared to an all-time high of 68 Americans are now, arguably, the best-housed people in the world
2010 Responded to volatility in housing/mortgage industries by announcing a set of policy changes to better position the FHA to manage its risk while continuing to support the nations housing market recovery
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Advantages of FHAMortgage Insurance

• Easier to qualify
• Low down payment
• Lower interest rates
• Assistance helping buyers keep their home if they
  encounter hard times

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FHA Funding

• The only government agency that operates entirely
  from its self-generated income
• Proceeds from mortgage insurance premiums are
  used to operate the program
• FHA provides significant economic stimulation to
  the country in the form of
• Home and community development
• Building suppliers
• Tax bases
• Schools
• Additional forms of revenue

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Eligibility Requirementsfor FHA Financing

• Have a valid social security number
• Have valid residency in the United States
• Be of legal age to sign on a mortgage in your
  state

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Qualifying RequirementsFor FHA Financing

• Borrower must have sufficient income to qualify
  for the mortgage payment and other debts
• Lenders will verify income, assets, liabilities,
  and credit history in the process for all parties
  on the loan

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FHA for Veterans

• Previously offered veterans special provisions
  for financing that have now been discontinued
• FHA continues to supplement the VA homeownership
  Loan Guaranty programs for veterans
• With less-than-full eligibility for a
  VA-guaranteed loan
• Who are co-borrowers with someone other than a
  spouse
• Whose eligibility is tied up until a loan that
  was assumed is paid off or the veteran is
  released from all liability
• Who are re-using their eligibility and whose new
  loan under VA may have a funding fee greater than
  FHAs mortgage insurance premium

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FHA Maximum Mortgage Limits

• Limits are determined by the county in which the
  property is located and are based upon numerous
  variables and formulas
• No FHA mortgage can be originated that is in
  excess of the county limits

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FHA Maximum Mortgage Limits
cont.

• For single-family housing, the maximum mortgage
  limits generally are
• 250,000 to 500,000 for most areas
• More than 700,000 for certain high-cost areas
• FHA mortgage limits for specific areas can be
  obtained at
• https//entp.hud.gov/idapp/html/hicostlook.cfm

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Chapter 1 Summary

1. The Federal Housing Administration (FHA) is a
   government agency that insures on loans made by
   approved lenders.
2. FHA insures mortgages on single-family,
   multifamily and manufactured homes.
3. Advantages of FHA loans are that the qualifying
   criteria for borrowers are not as strict, and the
   down payment requirements are less.

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Chapter 1 Summary
cont.

• FHA is the only government agency that operates
  entirely from its self-generated income, with no
  costs to the taxpayers.
• 5. FHA mortgage programs do not have maximum
  income limits for qualifying, but borrower must
  qualify for the mortgage payment and other debts.

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Chapter 1 Discussion Point

• What issues regarding FHA lending have been
  raised throughout this chapter and which place
  great responsibility on the appraiser?

• The volume of loans insured by FHA
• The risk of loss to FHA for defaulted loans,
  specifically due, but not limited, to
• More lenient eligibility requirements
• Higher loan to value ratio (lower down payment)
• The broad types of properties eligible

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Chapter 2

• FHA Loan Types

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Objectives

• Differentiate between the various FHA loans
  available with respect to property type and
  requirements
• Understand the application of the FHA mortgage
  products to various properties and borrowers

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Terms to Remember

• Fannie Mae
• Mortgagee
• Mortgagor
• Reverse Mortgage

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FHA Loan Types

• 203(b) Mortgage Insurance Program
• 203(H) Mortgage Insurance Program for Disaster
  Victims
• 255 Home Equity Conversion Mortgage Program
  (HECM) Reverse Mortgages for Seniors
• 203(k) Rehab Program
• 220(d)(3)(A) Urban Renewal Mortgage Insurance
  Program

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203(b) MortgageInsurance Program

• Assists with the purchase or refinance of a
  principal residence

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203(H) Mortgage InsuranceProgram for Disaster
Victims

• Helps victims in federally designated disaster
  areas get mortgages to become, or re-establish
  themselves as, homeowners
• Used for rebuilding or purchasing another home

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255 Home Equity ConversionMortgages for Seniors

• Can be used by senior homeowners, age 62 and
  older, to convert the equity in their home into
  monthly income streams and/or a line of credit to
  be repaid when they no longer occupy the home

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203(k) Rehab Program

• Primary program for rehabilitation and repair of
  single-family properties in either a refinance or
  purchase transaction

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220(d)(3)(A) Urban RenewalMortgage Insurance
Program

• Insures lenders against losses on mortgage loans
  used to rehabilitate one- to eleven-family
  dwellings or build new ones in redevelopment areas

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Chapter 2 Summary

1. A variety of FHA loans are available - all FHA
   lenders might not offer all FHA loan programs.
2. The 203(b) Mortgage Insurance Program assists
   with the purchase or refinance of a principal
   residence.
3. The 203(H) Mortgage Insurance Program for
   Disaster Victims is utilized when the federal
   government helps victims in designated disaster
   areas.
4. A 255 Home Equity Conversion Mortgage Program is
   used by a senior homeowner to convert the equity
   in a home into monthly income streams and/or a
   line of credit.

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Chapter 2 Summary
cont.

• 5. When using an FHA 203(k) loan, the borrower
  can get just one mortgage loan to finance both
  the purchase (or refinance) and rehabilitation.
• 6. The FHA 220(d)(3)(A) Urban Renewal Program is
  used to insure loans used to rehabilitate one- to
  eleven-family dwellings or build new ones in
  specific redevelopment areas.

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Chapter 2 True or False Challenge

• The FHA 203(k) program requires that one- to
  four-unit dwellings must be completed for one
  year.
• True False

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Chapter 2 True or False Challenge

• 2. The FHA 220 program does not allow for the
  purchase of properties that have already been
  rehabilitated by a local public agency.
• True False

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Chapter 2 True or False Challenge

• Properties qualifying for the 255 Home Equity
  Conversion Mortgage can be investment property or
  owner-occupied.
• True False

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Chapter 2 True or False Challenge

• The FHA 203(b) loan program allows financing for
  the purchase of up to a four-unit property.
• True False

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Chapter 2 True or False Challenge

• A feature of the 203(h) Mortgage Insurance
  Program for Disaster Victims is that there is no
  down payment required.
• True False

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Chapter 3

• Becoming and Remaining
• an FHA Appraiser

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Objectives

• Understand the eligibility requirements to become
  an FHA-approved appraiser
• Correctly complete the FHA appraiser application
• Complete the procedure for placement on FHAs
  roster, recognize reasons for removal, and
  understand how to remain current

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Terms to Remember

• FHA Appraiser
• FHA Appraiser Roster
• Mortgagee Letter

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Becoming an FHA Appraiser

• Be a state-certified appraiser with credentials
  based on the minimum certification criteria
  issued by the Appraiser Qualifications Board
  (AQB) of the Appraisal Foundation
• Not be listed on the General Service
  Administration (GSA) Excluded Parties List System
  (EPLS), HUDs Limited Denial of Participation
  List (LDP), or HUDs Credit Alert Interactive
  Voice Response System (CAIVRS)

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Becoming an FHA Appraiser
cont.

• February 8, 2008, the FHA Exam was eliminated
• July 30, 2008, applications from state-licensed
  appraisers were no longer accepted
• October 1, 2008, FHA began accepting new
  applications only from state-certified appraisers
• October 1, 2009, state-licensed appraisers were
  removed from the Roster

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Reinstatement

• If an appraiser has previously been on the roster
  at any time, he will not be able to apply again
  as a "new" applicantthe application will be
  rejected
• However, he may qualify for reinstatement

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The FHA Appraiser Roster

• The Roster of Appraisers is maintained by HUD
• Lists those appraisers who have satisfied the
  requirements to become certified to perform FHA
  appraisals
• Lenders underwriting FHA loans may accept
  appraisals only from appraisers who are on this
  roster

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Procedure to Obtain Placement on the FHA
Appraiser Roster

• Generate and print the Application for Fee or
  Roster Personnel Designation, form HUD-92563. The
  form is automatically filled with the information
  entered on the Appraiser Roster Application page.
  No other information is required on the form.
• Sign the Application for Fee or Roster Personnel
  Designation, form HUD-92563. Then, scan all pages
  of the application into one Portable Document
  Format (PDF) file.
• Scan each state certification into a PDF file.
• Attach and upload the PDF files containing the
  scanned application and certification(s).

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Updating FHAAppraiser Information

• FHA Roster Appraisers are responsible for
  ensuring that the information contained in the
  FHA Appraiser Roster is accurate and up to date
• All FHA Roster appraisers must establish an FHA
  Connection user ID
• The Appraiser Roster screen on FHA Connection
  allows an FHA Roster Appraiser to update or
  correct information

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Some Possible Reasons for Removal from the Roster

• Significant deficiencies in appraisal, including
  non-compliance with Civil Rights requirements
  regarding appraisals
• Losing standing as a state-certified appraiser
  due to disciplinary action in any state in which
  the appraiser is certified
• Prosecution for committing, attempting to commit,
  or conspiring to commit fraud, misrepresentation,
  or any other offense that may reflect on the
  appraisers character or integrity

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Some Possible Reasons for Removal from the Roster
cont.

• Failure to perform appraisal functions in
  accordance with instructions and standards issued
  by HUD
• Failure to comply with any agreement made between
  the appraiser and HUD, or with any certification
  made by the appraiser
• Being issued a final debarment, suspension, or
  limited denial of participation
• Failure to maintain eligibility requirements for
  placement on the appraiser roster
• Failure to comply with HUD-imposed education
  requirements or failure to comply with such other
  education requirements

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Some Possible Reasons for Removal from the Roster
cont.

• If an appraisers certification in one state has
  expired, the appraiser will automatically be
  removed from the FHA Roster for that state, but
  will remain on the Roster for other states for
  which the appraiser carries a current
  certification

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Chapter 3 Summary

• To be an FHA Appraiser an appraiser must be a
  state-certified appraiser and not be listed on
  the federal appraiser warning system.
• Removal from the FHA Roster could be caused by
  appraisal deficiencies, jurisdictional
  disciplinary actions, commission of criminal
  conduct, and failure to perform to HUD standards.
• Once issued, an FHA appraiser must remain active
  on the FHA roster and is responsible for updating
  contact and renewal information

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Chapter 3 True or False Challenge

• A first-time applicant for the FHA Appraiser
  Roster is NOT required to submit proof of state
  appraisal certification.
• True False

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Chapter 3 True or False Challenge

• The certification contained in the FHA Appraiser
  Roster application acknowledges that the FHA
  roster appraiser is not an agent or employee
• of HUD/FHA.
• True False

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Chapter 3 True or False Challenge

• An individual submitting false information in an
  FHA Appraiser Roster application could be subject
  to fines of up to 25,000 and imprisonment for up
  to five years.
• True False

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Chapter 3 True or False Challenge

• Once the application for the FHA Appraiser Roster
  is completed by the appraiser applicant, the
  application and supporting documentation are
  mailed to the HUD office in the applicants
  jurisdiction.
• True False

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Chapter 3 True or False Challenge

• FHA Roster Appraisers are responsible for
  monitoring the Appraisal Subcommittees website
  for accuracy of their licensing status and
  information.
• True False

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Chapter 4

• FHA General Requirements

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Objectives

• Identify how recent changes imposed by FHA have
  affected the appraisal procedure and appraisers
• Recognize general FHA appraisal requirements and
  guidelines

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Terms to Remember

• Mortgagee Letter
• Intended Use
• Intended User
• Scope of Work

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FHA Roster Appraiser Protocol

• FHA has long advised lenders and appraisers of
  the importance of appraiser independence
• FHA reiterates the importance of appraiser
  independence, and advises of new requirements
  regarding who is eligible to request an FHA
  appraisal
• The new requirements are effective for all case
  numbers assigned on or after January 1, 2010,
  with the existing requirements remaining in effect

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New Requirements

• Prohibition of mortgage brokers and commission
  based lender staff from the appraisal process
• Appraiser Selection in FHA Connection
• Appraisal and Appraisal Management Company
  (AMC)/Third Party Organization Fees

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Affirming Existing Requirements

• Prevention of Improper Influences on Appraisers
• Appraiser Independence Safeguards
• Appraiser Engagement, Knowledge of Market Area,
  and Geographic Competency
• Appraiser Portability
• Appraisal Transfer and Change of Client Name in
  Appraisal Report

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Changes to Valuation Protocol

• Housing Trends
• The 1004 MC Market Conditions Addendum must be
  included in all FHA appraisals that are performed
  on or after April 1, 2009

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Changes to Valuation Protocol
cont.

• Appraisal Validity Periods
• Effective for all case numbers assigned on or
  after January 1, 2010, the validity period for
  all appraisals will be 120 days

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Changes to Valuation Protocol
cont.

• Repair Conditions
• Only repairs for property conditions that rise
  above the level of cosmetic defects, minor
  defects, or normal wear and tear are required

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Repair Conditions

• FHA no longer requires repairs for these minor
  cosmetic deficiencies
• All-weather road surfaces
• Debris and trash in crawl spaces
• Poor workmanship
• Lack of handrail(s) on stairs
• Bare floors, badly soiled carpeting, and plaster
  and sheetrock

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Repair Conditions
cont.

• Numerous conditions no longer require repair for
  existing properties, which were required in the
  past

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Repair Conditions
cont.

• The following items no longer require automatic
  inspections for existing properties (except in
  certain circumstances)
• Wood-destroying insects/organisms
• Well
• Septic
• Flat and/or unobservable roof

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Repair Conditions
cont.

• Conditions that will continue to require
  automatic inspections
• Standing water against the foundation and/or
  excessively damp basements
• Hazardous materials on the site or within the
  improvements
• Faulty or defective mechanical systems
• Evidence of possible structural failure

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Repair Conditions
cont.

• Conditions that require automatic repair for
  existing properties
• Inadequate access/egress from bedrooms to
  exterior of home
• Leaking or worn out roofs (if there are three or
  more layers of shingles on a leaking or worn out
  roof, all existing shingles must be removed
  before re-roofing)
• Evidence of structural problems (such as
  foundation damage caused by excessive settlement)
  
• Defective paint surfaces in homes constructed
  prior to 1978
• Defective exterior paint surfaces in homes
  constructed after 1978, where the finish is
  otherwise protected

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FHA Residential GeneralReporting Requirements

• FHA has adopted the following Fannie Mae forms
• Uniform Residential Appraisal Report
• Manufactured Home Appraisal Report
• Individual Condominium Unit Appraisal Report
• Small Residential Income Property Appraisal
  Report
• Appraisal Update and/or Completion Report
• Market Conditions Addendum

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The FHA Appraisal Can Be Made

• As Is
• Subject to Completion per Plans and
  Specifications
• Subject to Repairs or Alterations
• Subject to a Required Inspection

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Required Repairs

• Required repairs will be limited to necessary
  requirements to
• Protect the health and safety of the occupants
  (safety)
• Protect the security of the property (security)
• Correct physical deficiencies or conditions
  affecting structural integrity (soundness)

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Recommending Inspections

• Appraisers are reminded not to recommend
  inspections only as a means of limiting liability

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Access to Property Improvements

• The appraiser must have full access to all
  property improvements
• If unable to visually evaluate the improvements
  in their entirety, contact the lender and
  reschedule a time when a complete visual
  inspection can be performed

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Key General Site andLocation Requirements

• Unacceptable Locations
• Site Hazards and Nuisances
• Soil Contamination
• Grading and Drainage
• Individual Water and Sewage Systems
• Private Road Access and Maintenance

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Key General Requirements for the Dwelling and
Improvements

• Roofing
• Mechanical Systems
• - Electrical
• - Plumbing
• Other Health and Safety Deficiencies
• Lead-based Paint Hazards

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Key GeneralAssignment Requirements

• The appraiser must, at a minimum
• Perform a complete visual inspection of the
  interior and exterior
• Inspect the neighborhood
• Inspect each of the comparable sales from, at
  least, the street
• Research, verify, and analyze data from reliable
  public and/or private sources
• Report the analysis, opinions, and conclusions in
  this appraisal report

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Key GeneralAssignment Requirements
cont.

• Intended Use The intended use of the appraisal
  report is for the lender/client to evaluate the
  property that is the subject of this appraisal
  for a mortgage finance transaction
• Intended User The intended user of this
  appraisal report is the lender/client and HUD/FHA

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Statement of Assumptionsand Limiting Conditions

• Mirrors the language of all residential
  properties reported on the URAR 1004 reporting
  form

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Appraisers Signature

• For FHA appraisals the only signature permitted
  is that of the lender-selected FHA Roster
  Appraiser
• Supervisory signatures are not permitted

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Other Key Reporting Requirements

• Sketch should include gross living area above
  grade, including all exterior dimensions of the
  house
• Include patios, porches, garages, breezeways, and
  other offsets
• State covered or uncovered to indicate a roof
  or no roof (such as over a patio)

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Other Key Reporting Requirements
cont.

• Subject photos should include
• - Front and rear at opposite angles to show
  all sides of the dwelling
• - Any improvements with contributory value
  that are not captured in either the front or
  rear photo
• - Street scene photo to include a portion of
  the subject site
• If the subject property is proposed construction
  and the improvement has not started, the
  appraiser should take a photograph that shows the
  grade of the vacant lot

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Comparable Photographs

• Use of MLS photos to exhibit comparable condition
  at the time of sale is acceptable
• However, the appraiser must include his or her
  photos, as well, to evidence compliance with the
  requirement to inspect each comparable from the
  street

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Chapter 4 Summary

1. FHA has adopted the use of four of Fannie Maes
   reporting forms. (Plus the Update form and Market
   Conditions Addendum)
2. The appraiser may appraise a home under
   construction, that is 90 or more complete,
   without plans and specifications.
3. FHA only requires repairs for property conditions
   that rise above the level of cosmetic defects,
   minor defects, or normal wear and tear.
4. The appraiser must, at a minimum, perform a
   complete visual inspection of the interior and
   exterior of the subject property, inspect the
   neighborhood, inspect the comparable sales from
   the street, research, verify, and analyze data
   from reliable public and/or private sources, and
   report his or her analysis, opinions, and
   conclusions in the appraisal report.

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Chapter 4 Summary
cont.

• 5. For FHA appraisals, the only signature
  permitted is that of the lender-selected FHA
  Appraiser. Supervisory signatures are not
  permitted.
• 6. Intended user of an FHA appraisal report is
  the lender/client and HUD/FHA.
• 7. If the appraiser is unable to visually
  evaluate the improvements in their entirety, the
  lender is to be contacted and the appraiser is to
  reschedule a time when a complete visual
  inspection can be performed.

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Chapter 4 Multiple Choice Activity

• 1. According to FHA, which condition requires an
  automatic repair?
• a. defective paint on a home built before 1978
• b. heaving sidewalks
• c. leaky faucets
• d. poor workmanship

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Chapter 4 Multiple Choice Activity

• 2. An appraisal on a dwelling that is under
  construction and more than 90 complete with only
  minor finish work remaining is performed
• a. as is.
• b. subject to the appraisers review of plans
  specifications.
• c. subject to completion.
• d. subject to repairs or alterations.

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Chapter 4 Multiple Choice Activity

• 3. If soil contamination appears to be present,
  the property
• a. is appraised subject to repairs.
• b. might require further analysis and testing.
• c. must have the condition removed.
• d. would not qualify for FHA financing.

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Chapter 4 Multiple Choice Activity

• 4. An all-weather roadway is
• a. one on which all vehicles can pass in all
  types of weather.
• b. one on which an emergency vehicle can pass
  in all types of weather.
• c. a solid surface public road.
• d. a solid surface road.

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Chapter 4 Multiple Choice Activity

• 5. To check a plumbing system, the appraiser must
• a. check for leaks around fixtures.
• b. flush toilets.
• c. turn on a representative number of faucets.
• d. all of the above

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Chapter 4 Multiple Choice Activity

• 6. In an FHA appraisal, the appraisers
  certification states that
• a. the appraiser has relied on the sales
  comparison approach.
• b. the appraiser has verified comparable sales
  with an interested party.
• c. the lender may not distribute the appraisal
  report.
• d. only the lender, FHA, and/or HUD may rely on
  the report.

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Chapter 4 Multiple Choice Activity

• 7. Front and rear photos of the subject should
  show
• a. accessory structures.
• b. the grade of the site.
• c. opposite sides of the structure.
• d. surrounding properties.

91
Chapter 4 Multiple Choice Activity

• 8. To check the electrical system of a property,
  the appraiser is required to
• a. examine the inside of the electrical service
  panel, with the cover off.
• b. test all outlets with an electrical testing
  device.
• c. test a random number of switches and
  receptacles.
• d. turn on all electrical fixtures and
  appliances at once.

92
Chapter 4 Multiple Choice Activity

• 9. To qualify for FHA financing, the subject
  property, in most cases, must
• a. have a closet in every bedroom.
• b. have handrails on all stairs.
• c. not have conditions that would threaten the
  safety and well-being of the occupants.
• d. all of the above

93
Chapter 4 Multiple Choice Activity

• 10. The subject floor plan sketch must include
• a. accessory structures.
• b. below-grade finishes.
• c. garages.
• d. interior walls.

94
Chapter 5

• FHA Protocol for Reporting
• Data for a One-unit Dwelling

95
Objectives

• Recognize the data that is expected to be
  collected for an FHA appraisal
• Observe FHA protocol in reporting data

96
Terms to Remember

• FHA Case Number
• Accessory Unit
• Accessory Dwelling Unit
• Census Tract Number

97
Section 1 Subject

• Key Points
• The FHA appraisal may not be transmitted to the
  lender without a case number
• Enter the nearest intersection if a house number
  is not available

98
Section 1 Subject
cont.

• Key Points
• If the property is vacant, the appraiser should
  note in the Improvements section whether the
  utilities were on or off at the time of the
  appraisal and condition the appraisal on a
  satisfactory re-inspection

99
Section 2 Contract

• Key Points
• FHA requires that the appraiser be provided with
  a complete copy of the ratified sales contract,
  including all addenda, for the subject property
• If unable to obtain this information, the
  appraiser is to state what efforts were made to
  obtain it

100
Section 2 Contract
cont.

• Key Points
• The Date of Contract is the date when all
  parties have agreed to the terms of, and signed,
  the contract
• The property may not be eligible for FHA
  financing if it involves flipping (resale in less
  than 90 days)

101
Section 3 Neighborhood

• Key Points
• Comparing houses that have been sold and resold
  in recent years is an effective way to determine
  market trends
• To determine the equilibrium status of supply and
  demand in the neighborhood, compare the number of
  houses sold to the number of houses listed for
  sale in a recent time period

102
Section 3 Neighborhood
cont.

• Key Points
• In addition to FHAs requirement to state
  marketing time, USPAP requires the development
  and reporting of exposure time in market value
  assignments
• The high and low for both price and age should
  exclude the extreme

103
Section 4 Site

• Key Points
• If the shape of the site is irregular, show the
  boundary dimensions (85' x 150' x 195' x 250'),
  or attach a property survey, site plan, or plat
  or legal description with the comment see
  attached
• Do not list site area on the dimensions line

104
Section 4 Site
cont.

• Key Points
• Identify a view with a significant positive or
  negative influence on the value
• Photographs are recommended for any negative or
  positive view influences affecting value or
  marketability

105
Section 4 Site
cont.

• Key Points
• Public utilities do not include any community
  systems sponsored, owned, or operated by the
  developer or a private company not subject to
  government regulation or financial assistance
• The appraiser shall indicate whether a public
  water or sewage disposal system is available to
  the site

106
Section 5 Improvements

• Key Points
• Properties that are either proposed or under
  construction require plans and specifications for
  the appraiser to review
• If the property is less than one year old,
  include both the month and year completed
• Note any significant difference between the
  actual and effective ages and explain in the
  condition of property comments section

107
Section 5 Improvements
cont.

• Key Points
• The attic must be entered, at a minimum, by head
  and shoulders to observe the attic area for
  insulation, deficient materials, leaks, or
  readily observable evidence of significant water
  damage, structural problems, previous fire
  damage, FRT sheathing, exposed and frayed wiring,
  and adequate ventilation by vent, fan, or window

108
Section 5 Improvements
cont.

• Key Points
• Turn on the heating and/or air conditioning
  system to test functionality, weather permitting,
  and that no unusual noises are heard, no odors or
  smoke are emitted indicating a defective unit,
  etc.
• However, do not operate the system if doing so
  may damage equipment or when outside temperatures
  will not allow system to operate

109
Section 5 Improvements
cont.

• Key Points
• Turn on the hot water to ensure that the water
  heater is operating appropriately
• View the roof from ground level to determine if
  the integrity of the roof is sufficient
• A single-lane driveway is considered to be a
  one-car driveway
• It would be considered a two-car driveway if
  either car can be moved without disturbing the
  other

110
Section 5 Improvements
cont.

• Key Points
• A dining area built as an L-shape off the kitchen
  may or may not be considered a room depending on
  the size
• Hypothetically insert a wall to separate the two
  areas that have been built as one
• If the residents can use the resulting two rooms
  with the same or more utility without increased
  inconvenience, count the room as two
• If the hypothetical wall would result in a lack
  of utility and increased inconvenience, count the
  room as one

111
Chapter 5 Summary

1. The URAR report form is used for a one-unit
   property for FHA.
2. The FHA case number together with borrower and/or
   property information is supplied by the
   lender/client. The FHA case number must be
   included in the report.
3. If the property is vacant, the appraiser should
   note whether the utilities were on or off.
4. In the case of a sales transaction, FHA requires
   that the appraiser be provided with a copy of the
   sales contract.

112
Chapter 5 Summary
cont.

• 5. When buyer concessions are being paid by the
  seller in the transaction, the appraiser is to
  report the dollar amount and describe the items
  to be paid. If the sale involves personal
  property it should be identified and excluded
  from the valuation.
• 6. The appraiser must clearly define the
  neighborhood boundaries by north, south, east,
  and west boundary points.
• 7. The subject property must be personally
  observed by the appraiser, with any adverse
  conditions noted in the report.
• 8. An area built as an L-shape may or may not be
  considered a room, depending on the size.

113
Chapter 5 Workgroup Activity

• Discuss the FHA protocol for the following
  circumstances
• A property without a house number or street
  address
• Enter the nearest intersection if a house number
  is not available.

114
Chapter 5 Workgroup Activity
cont.

• A special assessment for street lighting that
  will last for the next 10 years
• Report the dollar amount of special assessments
  for the subject property and provide a brief
  explanation for the assessment.
• If the assessment is larger than typical, the
  appraiser should probably discuss whether the
  assessment might affect marketability of the
  property.

115
Chapter 5 Workgroup Activity
cont.

• The seller in a sales transaction is someone
  other than the owner of record
• If the seller is not the owner of public record,
  the appraiser must explain.

116
Chapter 5 Workgroup Activity
cont.

• Checking the central air conditioning of a
  property in cold-climate winter months
• Do not operate the system if doing so may damage
  equipment or when outside temperatures will not
  allow system to operate.

117
Chapter 5 Workgroup Activity
cont.

• A property has both vinyl siding and brick
  exterior materials
• If there is a combination of materials, show the
  predominant portion first and rate the observed
  condition.

118
Chapter 5 Workgroup Activity
cont.

• Description of windows
• Enter window type Double hung, single hung,
  casement, sliders, etc., and identify the window
  frame material Wood, aluminum, steel, vinyl,
  etc. Rate the condition observed.
• Describe the storm sash material or state if
  windows are double glazed, or a combination of
  the two. Rate the condition observed if none, so
  state.
• Describe the style of any screens (full, half,
  none) and rate the condition observed.

119
Chapter 5 Workgroup Activity
cont.

• A crawl space
• Access to the space should be clear. Examine the
  crawl space for inadequate access (minimum entry
  of the head and shoulders).
• Check the distance from bottom of floor joists to
  ground. Space should be adequate for maintenance
  and repair. A minimum distance of 18 inches from
  the ground to the bottom of the joists is highly
  recommended but not mandated.
• Check for insulation and ventilation, or for any
  structural problems. The support beams should be
  intact and of structural soundness.

120
Chapter 5 Workgroup Activity
cont.

• Dirt basement floor
• Determine whether such a property is typical for
  the area and is readily marketable. If it is
  typical for the area and readily marketable, it
  is not required that a concrete basement floor be
  installed. Mechanical equipment, however, must be
  located on a concrete pad.

121
Chapter 6

• One-unit Valuation
• Methods for FHA

122
Objectives

• Accurately complete the valuation data sections
  of the URAR form
• Correctly develop valuation methods according to
  FHA protocol
• Form a credible opinion of value observing FHA
  guidelines

123
Terms to Remember

• Comparable Data Pool
• Data Source
• Verification Source

124
Section 6 SalesComparison Analysis

• Key Points
• Report the number of comparable properties
  currently offered for sale, as of the effective
  date of the appraisal, and the number of
  comparable sales in the subject neighborhood,
  within 12 months of the effective date of the
  appraisal

125
Section 6 SalesComparison Analysis
cont.

• Key Points
• Enter proximity to comparables in straight-line
  distance and direction. For example, "1.5 miles
  NE" or 3 blocks south
• MLS by itself is not considered a verification
  source. Contacting someone with first-hand
  knowledge of the transaction (agent, broker,
  buyer, seller, etc.,) is preferred method
• Do not use as market data, comps that are not
  verified and adjusted to reflect the terms and
  conditions of sale

126
Section 6 SalesComparison Analysis
cont.

• Key Points
• Make adjustments only if the dissimilarity has a
  noticeable effect on the value
• Report the type and amount of sales concession
  for each comparable sale
• If none, so state

127
Section 6 SalesComparison Analysis
cont.

• Key Points
• State month and year of settlement
• Showing contract date and settled date is also
  acceptable
• Time adjustments must be supported by the market
  and consistent with the neighborhood market
  conditions noted
• If this is the case, show both the contract date
  and settled date, as any time adjustment should
  be calculated using the contract date rather than
  the settled date
• Explanation is required for any time adjustments

128
Section 6 SalesComparison Analysis
cont.

• Reminder
• For all FHA appraisals performed on or after
  April 1, 2009, the appraisal must include the
  Market Conditions Addendum (Form 1004MC)

129
Section 6 SalesComparison Analysis
cont.

• Key Points
• Location adjustments may be warranted for factors
  that influence sales price, such as a busy street
  versus a quiet street rather than using the name
  of the community or subdivision

130
Section 6 SalesComparison Analysis
cont.

• Key Points
• Enter the site size in square feet or acreage
• If necessary, consider the possibility of excess
  or surplus land
• Describe the view from the site (e.g., similar
  homes, commercial area, water view, scenic view,
  etc.)
• Average or Good, etc., are to be used only as
  adjuncts (e.g., Residential/Average, Water
  view/Good)

131
Section 6 SalesComparison Analysis
cont.

• Key Points
• Enter the style according to a description used
  by local custom. Be consistent
• Enter only the actual age of the subject and each
  comparable sale
• Floor plan (interior walls) of the subject is
  required when functional obsolescence is
  attributable to layout or poor floor plan

132
Section 6 SalesComparison Analysis
cont.

• Key Points
• Generally, adjustments should not exceed 10 for
  line items, 15 for net adjustments, and 25 for
  gross adjustments
• If any adjustments exceed guidelines, an
  explanation must be provided for not using more
  similar comparable sales

133
Section 6 SalesComparison Analysis
cont.

• Key Points
• Report prior sales or transfers of the comparable
  sales for the year prior to the date of sale of
  the comparable sale
• For comparable data, enter the date the data was
  published or updated by the source

134
Section 7 Reconciliation

• Key Points
• The appraiser should note whether the appraisal
  is considered as is or subject to repairs,
  alterations, or required inspection conditions
• More than one box may be marked, depending on the
  assignment and property conditions

135
Section 9 Cost Approach

• Key Points
• If the subject property is new construction (less
  than one year old), or the cost approach is
  recognized in the market as a basis for pricing,
  the appraiser may complete the cost Approach
  however, it is not required for an FHA appraisal
• State the remaining economic life as a single
  number or as a range
• This line must be completed for every FHA
  appraisal

136
Section 10 Income Approach

• Key Points
• The income approach is not required for FHA
  appraisals completed on the Uniform Residential
  Appraisal Report, Fannie Mae Form 1004

137
Chapter 6 Summary

• For Date of Sale in the sales comparison
  approach, the month and year of closing is
  stated. Showing the contract date and settled
  date is also acceptable when a time adjustment is
  warranted for changes in market condition changes
  between the two events.
• In the sales comparison approach, the appraiser
  is required to report the number of comparable
  properties currently offered for sale, as of the
  effective date of the appraisal, and the number
  of comparable sales in the subject neighborhood,
  within 12 months of the effective date of the
  appraisal.

138
Chapter 6 Summary
cont.

• 3. Adjustments in the sales comparison approach
  should not exceed 10 for line items, 15 for net
  adjustments, and 25 for gross adjustments. If
  any adjustments exceed guidelines, an explanation
  must be provided.
• 4. Cost approach is meaningful if subject
  property is new construction (less than one year
  old), or if cost approach is recognized in the
  market as a basis for pricing. In such cases, the
  appraiser may complete the cost approach
  however, it is not required for an FHA appraisal.
• 5. In a single-family residential property, the
  income approach is generally not recognized as a
  basis for buying by the market. Thus, the income
  approach is not required for FHA appraisals
  completed on the URAR.

139
Chapter 6 True or False Challenge

• MLS, by itself, would be considered a
  verification source of data.
• True False

140
Chapter 6 True or False Challenge

• 2. For location, using terms such as corner
  lot or through street is acceptable.
• True False

141
Chapter 6 True or False Challenge

• Gross adjustments, per FHA guidelines, can never
  exceed 25.
• True False

142
Chapter 6 True or False Challenge

• Comparable sales should always be researched for
  a prior transaction one year prior to the date of
  the comparable sale.
• True False

143
Chapter 6 True or False Challenge

• More than one box may be marked in the
  reconciliation (as is, subject to inspection,
  etc.,) section depending on the assignment and
  property conditions.
• True False

144
Chapter 6 True or False Challenge

• The income approach would be required by FHA if
  the property were a single-family investment
  property.
• True False

145
Chapter 6 True or False Challenge

• When reporting the cost approach, the appraiser
  is to describe the method for determining
  physical depreciation.
• True False

146
Chapter 6 True or False Challenge

• If the cost approach is developed, the appraiser
  must provide an explanation if the remaining
  economic life is less than 30 years.
• True False

147
Chapter 7

• FHA Appraisal for
• Other Property Types

148
Objectives

• Describe FHA expectations in the development and
  reporting of manufactured dwellings,
  condominiums, and two- to four-unit housing
• Recognize the protocol that differs from the
  standards for performing an FHA appraisal of a
  one-unit property

149
Term to Remember

• Manufactured Home
• HUD Data Plate (Manufacturers Data Plate)
• N.A.D.A. Guide

150
Manufactured Homes

• Key Points
• FHA uses the Manufactured Home Appraisal Report
  Form 1004C
• A manufactured home is designed and constructed
  to the Federal Manufactured Home Construction and
  Safety Standards as evidenced by an affixed
  certification label
• Manufactured homes may also be referred to as
  mobile homes, sectionals, multi-sectionals,
  doublewides, triple-wides, or singlewides
• Modular housing is built to local/state codes and
  is not considered to be manufactured housing

151
Manufactured Homes
cont.

• Key Points
• To be eligible for FHA insurance, a manufactured
  home is
• Built on or after June 15, 1976
• At least 400 square feet in gross living area
• Built and remaining on a permanent chassis
• Designed to be used as a dwelling with a
  permanent foundation, which is designed and
  constructed to HUD/FHA criteria
• Showing a HUD Certification Label/Seal affixed to
  the homes exterior

152
Manufactured Homes
cont.

• Key Points
• Manufactured homes must be taxed as real estate
  to be eligible for Title II FHA insurance
• If the manufactured home is new construction,
  does the contract price include all delivery,
  installation, and setup costs?
• Appraiser must analyze the manufacturers invoice
  or state why the analysis was not performed
• If the invoice is not available, the appraiser is
  to note the unavailability

153
Manufactured Homes
cont.

• Key Points
• To be eligible for FHA insurance, the finished
  grade level beneath a manufactured home must be
  at or above the 100-year flood plain
• To be eligible for FHA-insured financing, the
  manufactured home must have a HUD Certification
  Label affixed to the taillight end of each
  transportable section

154
Manufactured Homes
cont.

• Key Points
• Appraiser must indicate if the original
  manufactured home (as delivered and installed) to
  the site has been altered or has additions
• If appraiser suspects that an addition or
  modification to the home poses a risk to the
  structural integrity of the home, the appraiser
  is to notify the lender

155
Manufactured Homes
cont.

• Key Points
• If the manufactured home is less than one year
  old, include both the month and year completed in
  the report
• If it is more than one year old, insert the year
  built in the report

156
Manufactured Homes
cont.

• Key Points
• If available, indicate the name of the person or
  company that installed the manufactured home, the
  date of installation, and the model year of the
  manufactured home
• If information not readily available, the
  appraiser is to note such

157
Manufactured Homes
cont.

• Key Points
• The appraiser must inspect the underside of the
  manufactured home and determine if the towing
  hitch running gear (wheels and axels) has been
  removed
• If not removed, or unable to determine due to
  lack of access, the manufactured home is not
  eligible for FHA-insured financing and the lender
  must be notified

158
Manufactured Homes
cont.

• Key Points
• The appraiser is required to complete the cost
  approach only if the manufactured home is the
  initial sale from manufacturer
• If manufactured home is more than one year old
  and retailers invoice stating the retail
  purchase price of the home is available, a copy
  of the invoice should be appended to the
  appraisal report
• If manufactured home is new construction less
  than one year old but title has been re-conveyed
  after the initial sale or if the home is more
  than a year old, the cost approach is not
  required by FHA

159
Manufactured Homes
cont.

• Key Points
• The income approach is not required for FHA
  appraisals completed on the Manufactured Home
  Appraisal Report, Fannie Mae Form 1004C

160
Individual Condominium Unit

• Key Points
• FHA uses the Individual Condominium Unit
  Appraisal Report Form 1073
• The appraiser must accurately report the
  conditions observed including the overall
  condition of the project and quality of
  construction

161
Individual Condominium Unit
cont.

• Key Points
• The appraiser will indicate whether a single
  entity owns more that 10 of the total units in
  the project
• If yes, provide the name of the entity and the
  number of units owned. It is possible to have
  multiple entities in this category

162
Individual Condominium Unit
cont.

• Key Points
• Explain the results of analysis of the
  condominium project budget or why the analysis
  was not performed
• The analysis includes adequacy of fees and
  reserves to meet operating expenses, which may
  include legal and accounting, utilities, trash
  removal, snow removal, repairs and maintenance,
  recreational area maintenance and upkeep,
  gardening and yard maintenance, taxes, insurance,
  facility rentals, etc.

163
Individual Condominium Unit
cont.

• Key Points
• If there was difficulty locating comparable
  properties (e.g., the subject is a high-rise
  and it is the only sale within the project in the
  past 12 months, and one or more of the comparable
  properties was a mid-rise or garden style),
  then all such properties in the subjects
  neighborhood are to be treated as comparable and
  counted

164
Small ResidentialIncome Properties

• Key Points
• FHA uses the Small Residential Income Property
  Appraisal Report Form 1025
• If the subject property is the sole, or one of
  only several, 2- to 4-unit single-family homes in
  the neighborhood, indicate this scarcity under
  market conditions, identify the most predominant
  housing type in the neighborhood, and address
  trends in value for that identified type

165
Small ResidentialIncome Properties
cont.

• Key Points
• For marketing time, state the typical length of
  time a property similar to the subject property
  would have to stay on the market before being
  sold at a price near its market value
• A two- to four-unit dwelling with an accessory
  unit is ineligible for FHA financing

166
Small ResidentialIncome Properties
cont.

• Key Points
• The gross living area is obtained by drawing an
  imaginary line on the outside perimeter walls of
  each unit
• The gross building area is the total finished
  area (including common areashallways, interior
  stairways, etc.) of the improvements, above and
  below grade, based on exterior measurements

167
Small ResidentialIncome Properties
cont.

• Key Points
• For each unit, enter the total number of rooms,
  the total number of bedrooms, and the total
  number of bathrooms
• Enter the total square footage of the gross
  living area for each unit
• If a unit is located in the basement but has a
  walkout at grade entrance, include it in the
  gross building area

168
Small ResidentialIncome Properties
cont.

• Key Points
• For comparable rental data, the appraiser is
  required to report information on the subject and
  three comparable rental properties
• Ideally, the properties used for comparable
  rentals will not be the same as those used in the
  sales comparison analysis

169
Small ResidentialIncome Properties
cont.

• Key Points
• For purposes of the income approach, the
  appraiser must reconcile the applicable indicated
  monthly market rents to provide an opinion of the
  market rent for each unit in the subject property
• There are no significant differences in the
  development or reporting of the cost approach
  from that discussed in appraising a one-unit
  property

170
Chapter 7 Summary

• 1. Modular housing is built to the local/state
  codes and is not to be considered manufactured
  housing for FHA purposes.
• 2. Appraisers must pay particular attention to
  Appraisers Certifications of the Manufactured
  Home Appraisal Report (i.e., combining land sales
  and contract purchase price of a manufactured
  home, and/or experience with the property type)
  and the USPAP Competency Rule that addresses an
  appraisers familiarity with a specific property
  type.

171
Chapter 7 Summary
cont.

• 3. To be eligible for FHA insurance, the
  finished grade level beneath a manufactured home
  must be at or above the 100-year flood plain.
• 4. For appraising a condominium unit, the
  appraiser must accurately report the conditions
  observed including the overall condition of the
  project and quality of construction.
• 5. The appraiser must explain the results of any
  analysis of the condominium project budget. If
  the budget was not analyzed, the appraiser should
  explain why the analysis was not performed.

172
Chapter 7 Summary
cont.

• 6. A 2- to 4-unit dwelling with an accessory
  unit is ineligible for FHA financing.
• 7. The gross living area of a 2- to 4-unit
  property is obtained by drawing an imaginary line
  on the outside perimeter walls of each unit.

173
Chapter 7 Summary
cont.

• 8. The gross building area of a 2- to 4-unit
  property is the total finished area (including
  common areashallways, interior stairways, etc.,)
  of the improvements, above and below grade, based
  on exterior measurements.
• 9. When appraising a 2- to 4-unit property, the
  appraiser is required to report information on
  the subject and three comparable rental
  properties. Ideally, the properties used for
  comparable rentals will not be the same as those
  used in the sales comparison analysis.

174
Chapter 7 Multiple Choice Activity

• 1. The HUD Data Plate could be found in any of
  these areas EXCEPT the
• a. electric service panel.
• b. kitchen.
• c. outside rear section of the unit.
• d. utility room.

175
Chapter 7 Multiple Choice Activity

• 2. If a small residential income property has
  both a conventional dwelling and a manufactured
  home on the site, the appraiser would need to
  complete the
• 1004C form only.
• 1025 form only.
• 1025 form and the 1004C form.
• 1025 form and portions of the 1004C form.

176
Chapter 7 Multiple Choice Activity

• 3. In selecting comparables for a condominium
  unit, the appraiser has found no sales of
  two-bedroom townhouse units within the past 12
  months similar to the subject. The appraiser
  should
• a. consider all such properties in the subject
  project as comparable.
• b. select larger three-bedroom townhouse
  comparables in the subject development.
• c. select one-story, two-bedroom comparables in
  the subject development.
• d. select superior two-bedroom townhouse units
  in the subject development.

177
Chapter 7 Multiple Choice Activity

• 4. To be eligible for FHA financing, the
  manufactured home must have a HUD Certification
  Label affixed to
• a. the foremost axle.
• b. the foremost cross-member of the frame.
• c. an interior location, such as the electrical
  panel or a kitchen cabinet.
• d. the taillight end side of each transportable
  section.

178
Chapter 7 Multiple Choice Activity

• 5. What would NOT be an acceptable method of
  describing the style of a manufactured home?
• a. Cape Cod
• b. Iron Trojan model
• c. one-floor
• d. Ranch

179
Chapter 7 Multiple Choice Activity

• 6. The cost approach is required for a
  manufactured home only if it is
• a. less than one year old, but being
  re- conveyed.
• b. more than one year old but has never been
  considered as real property.
• c. new construction conveyed from the
  manufacturer.
• d. none of the above

180
Chapter 7 Multiple Choice Activity

• 7. For a two- to four-unit property, which would
  NOT be required to satisfy reporting protocol?
• a. number of dishwashers
• b. number of refrigerators
• c. number of television cable connections
• d. number of washer/dryers

181
Chapter 7 Multiple Choice Activity

• 8. A two-unit dwelling in which one unit has a
  mother-in-law suite (accessory unit) would be
• a. considered only a two-unit dwelling.
• b. considered two units, with the suite having
  contributory value.
• c. considered three units.
• d. ineligible for FHA financing.

182
C