FHA Issues Draft of New Appraisal Requirements
The Federal Housing Administration on July 31 issued drafts of four new appraiser policy documents that it plans to add to its Single-Family Housing Policy Handbook. The FHA is seeking feedback before the documents are finalized.
The draft documents relate to FHA appraiser eligibility requirements and the application process, as well appraiser responsibilities and compliance actions, eligibility guidelines for appraisers performing appraisals and reporting results, data delivery requirements related to the FHA Uniform Appraisal Dataset and instructions to help appraisers accurately complete FHA appraiser forms.
FHA developed the documents in an effort to provide appraisers a more consistent approach to its policies. Stakeholders can submit comments on the draft policies through Sept. 2.
Below are highlights of some of the key changes to consider when reviewing the draft section.
FHA encourages stakeholders to review not just this “Highlights” document, but the entire draft Appraiser and Property Requirements for Title II Forward and Reverse Mortgages section posted on FHA’s Drafting Table “SF Draft Handbook Appraiser Requirements” Web page accessible from here.
A. High Energy Efficiency Homes and Building Components
| Current Requirements | Recommended Requirements |
| HUD has a special program for homes with Specialized Energy Systems designed to utilize wind or solar energy to reduce energy requirements. This program remains in effect and is underwritten differently than a traditional 203(b) insured loan. Current policy instructs appraisers to provide contributory value of the components, with limited guidance on the methods allowed to do so. | Directs the appraiser to utilize all appropriate valuation methods to calculate the contributory value of the energy efficient components. |
B. Accessory Dwelling Units
| Current Requirements | Recommended Requirements |
| The current requirements do not provide a clear accountability for determining the distinction between Single Family Accessory Dwelling Units (ADUs) and two-family dwellings. | Appraisers will be accountable for determining the number of units as part of the highest and best use analysis. |
C. Market Conditions Addendum to the Appraisal Report (Form 1004MC)
| Current Requirements | Recommended Requirements |
| Language on the industry standard form requires the market condition analysis to include “sales and listings that compete with the subject property.” This has confused some appraisers when defining the “market” they are meant to analyze. | Adds requirements to indicate that appraisers are to report on market conditions that include sales and listings that compete with the subject property as instructed, but to still ensure that their analysis is broad enough to have a sense of the overall market trends that will impact value over time. |
D. Appraisals for 203(k)-“As-Is” Value
| Current Requirements | Recommended Requirements |
| Prior policy asked the appraiser to provide both the as-is and after improved values in one report. | Appraiser to provide two reports, as required: an as-is value appraisal and an as improved appraisal. The same appraiser can do both assignments.
An appraisal performed to provide the as-is value will note issues that illustrate non-compliance with property acceptability criteria. The appraisal will not be rendered with these items hypothetically repaired as is customary for FHA 203 (b) requirements. The as-repaired appraisal will address and include these items as part of the analysis of the scope of work to be performed for repairs and improvements. |
E. Property Acceptability
| Current Requirements | Recommended Requirements |
| Fuel sources other than gas, oil, or electric require a back-up system. | More broadly defines heating systems to include all fuel sources that can be automated. |
F. Proximity to Power Lines
| Current Requirements | Recommended Requirements |
| Calculate fall distance based on obsolete power line tower structures. Many new structures collapse and do not pose the same risk to properties. | Removes fall distance requirements from property lines and considers risk to property itself as viewed by the appraiser. |
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FHA 203(k) Recommended Requirements for Two Appraisals not one appraisal as the present “as is and after improved values in one report.” Two reports = 2 full fees?