What is a Next Generation Home?
What makes a Next Generation home?
Appraisers, both FNMA and FrMAC, in concert with manufactured housing builders and the Appraisal Institute, are promoting a new type of MANUFACTURED home, and CE classes to teach appraisers about them (and typical MFH).
If your appraisal service area has manufactured homes, and you appraise them, you may want to peruse this essay.
The name generically applied to these new manufactured homes is Next Generation (NG). Each GSE has a different name for their LENDING program, see below.
Why is this happening? Up until relatively recently, the two GSE’s didn’t purchase manufactured home loans from lenders. That changed when FHFA, their Conservator regulator, directed both to develop programs to enable these kinds of loans to be part of their normal mortgage loan purchases from lenders, and to facilitate more opportunity for ‘affordable housing.’ Once that occurred, the GSE’s began working with the home builders to produce a more “site-built like” product.
For FNMA, these homes fall under the identifier “MH Advantage”, and for FrMAC, they are “CHOICEHome” …the names given to the lending programs each has.
What makes a Next Generation home? Per the GSE guidelines, the homes have higher quality siding, roof lines with higher pitch (up to 5/12), wider eaves, interiors with drywall walls and ceilings, better energy efficiency, higher quality cabinets / vanities with better quality counters, and they must have a garage included with the home purchase. The homes may sit lower to the ground in how they are installed on the site. These homes are to be considered ‘real estate’ when properly installed on a permanent foundation with correct ground attachments per HUD requirements (with the personal property title locally eliminated), on the borrower’s owned site.
Even though the building code used is still the HUD Code, and not the UBC (or IBC) adopted by most states for site-built dwellings, the intent is make these new Next Generation homes compete with site-built homes..
How will you (or an owner, or future purchaser) know the home is a Next Generation home? The GSE’s have mandated that a ‘new’ identification label be applied next to the tag to ID the home as NG. To me, that’s an oversite that needs correcting.(the white paper sheet) the home. This will indicate that the home meets the Next Generation criteria – considered comparable to other NG or site-built homes. From what I’ve read so far, there is
Now that we know what the homes are, let’s examine how they ‘have’ to be appraised – per the GSE’s.
This is the guidance from FNMA:
B4-1.4-01: Factory-Built Housing: Manufactured Housing (10/02/2018)
MH Advantage Appraisal Comparable Selection Requirements
For MH Advantage properties, appraisers must use other MH Advantage homes, when available, for the comparable sales. If fewer than three MH Advantage sales are available, then the appraiser must supplement with the best and most appropriate sales available, which may include site-built homes. See B4-1.3-08, Comparable Sales, for additional information.
The Manufactured Home Appraisal Report (1004C) or Appraisal Completion Report (1004D) must include photos of the MH Advantage Sticker, HUD Data Plate, HUD Certification Labels, and the site showing all driveways, sidewalks, and detached structures located on the site. Lender must review the appraisal photos to confirm MH Advantage eligibility.
This is the guidance from Freddie Mac:
The appraiser may use site-built homes as comparable sales if no CHOICEHome sales are available.
(I looked but didn’t find any additional FrMAC appraiser requirements like FNMA has.)
Appraisal Issues – from my perspective:
- Not all areas of the US presently have NG Dealers may not actually know much about this new initiative. I learned that today when I visited two separate local dealers in my area to see if they had any display models or could tell me more about the program. Both said that they believe the NG program will be concentrated in the east and south areas of the US at first. The GM of one dealership had a better understanding, but the sales person at the other dealer only had a vague knowledge of the program – which I had to describe! Consider visiting dealers in your region to discuss this product, and ask if any have been sold locally.
- Lack of an ‘external identifier’ on the homes to show they qualify as NG is going to become an issue going forward. Lack of a standardized interior location for the Data Plate and NG label is also an issue for keeping these tags in place over the life of the home.
- County assessors, or the appraiser contractors hired to do property assessments, may not know the difference in these NG homes, vs standard MFH’s. However, higher roof lines and wider eaves may tip them off – if they know in advance that the home is built to HUD Code. That means publicly available assessment info may be lacking or inaccurate. Remember, these NG homes are designed to ‘look’ like site-built homes, so a quick exterior observation may lead to the wrong conclusion.
- MLS associations, and the Agents/Brokers who own them, may not be fully trained on this product type. Coding systems within the MLS may not properly account for NG quality difference between these and typical MFH’s. This will need to be addressed by the designers of the MLS data base systems.
- It just dawned on me that the Zillow’s, other AVM’s and the various real property data amalgamators of the world also won’t have correct info unless the underlying data is accurate.
- So that leads us to the appraiser. Note that both GSE’s say that if no NG homes are available as comps, then site-built homes be used. If 2-4 above are not corrected, how will the appraiser (or real estate agent) actually know a comp property is a NG home, or not? Doing photos from the street won’t provide an obvious way to determine the home type. Appraising/valuing new construction NG homes probably will have to be done using site-built properties, especially if no other known NG homes have transferred recently.
- It is too soon to know if NG homes will retain their value and actually appreciate similar to site-built homes – to a point of course, when those values tend to decline while site value normally increases. As it is currently, typical MFH’s begin depreciating the moment they leave the dealer lot or are shipped to the site from the builder factory. (At least in our region; I don’t have first-hand knowledge of market activity elsewhere.)
- I have not seen anything about appraising NG homes from FHA or VA yet. If you have, let me know.
I strongly encourage appraisers who appraise MANUFACTURED homes to take a CE class on Manufactured and Factory Built Housing. The more you know about this product, the better you will become as a professional appraiser. Appraisal Institute and other providers have CE classes. Do the class ‘live’ so that you get an opportunity to “talk shop” with your peers, and maybe even develop business relationships that will enhance your own business.
If you’re beginning to see NG manufactured homes in your area, I’d be interested in hearing about your appraisal experience.