fha general requirements

FHA General Requirements

Chapter 3

Today's FHA and VA 04/22/23

Chapter 3: FHA General Requirements

Introduction

• There are several general requirements and protocols that FHA appraisers must be aware of and follow.

• The FHA reiterates the importance of appraiser independence, and advises of new requirements regarding who is eligible to request an appraisal from an FHA Roster appraiser.

• The 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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Key Terms

• Appraisal Report A report that confirms both USPAP Scope of Work requirements and specific guidelines from HUD documenting a property appraisal.

• Appraiser Shopping Where lenders order additional appraisals in an effort to assure the highest possible value for the property and/or the least amount of deficiencies and/or repairs noted and required by the appraiser.

• Definition of Market Value The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus (USPAP).

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Key Terms

• Intended Use The use or uses of an appraiser’s reported appraisal, appraisal review, or appraisal consulting assignment opinions and conclusions, as identified by the appraiser based on communication with the client at the time of the assignment (USPAP).

• Intended User The client and any other party identified, by name or type, as users of the appraisal, appraisal review, or appraisal consulting report by the appraiser on the basis of communication with the client at the time of the assignment (USPAP).

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Key Terms

• Lender Select The process by which lenders may select the appraiser from those designated on the FHA Appraiser Roster.

• Mortgagee Letter Communication from FHA to lenders, appraisers, and others regarding FHA procedure, application, etc.

• Scope of Work The type and extent of research and analyses in an assignment.



FHA Roster Appraiser Protocol: Requirements

• Qualifying Appraisers• In order to be placed on the FHA Appraiser Roster, an

appraiser must:– Be state certified (no more licensed-level appraisers)– Appear on the ASC’s National Registry– Include credentials in the state-certification requirement based on

the minimum certification criteria issued by the Appraisal Qualifications Board (AQB) of the Appraisal Foundation

– NOT be listed on GSA’s Excluded Parties List System (EPLS), HUD’s Limited Denial of Participation (LDP) list, or HUD’s Credit Alert Verification Reporting System (CAIVRS).

Note: Effective January 1, 2015, a four-year college degree is required for both Residential and General Certification.


Use of Trainees

• Per HUD’s rules regarding use of trainees FHA Roster appraisers must– Sign the appraisal– Perform all analysis and reconciliation– Select the comparables and critical analyses in the

Market Conditions form and appraisal report– Inspect the subject property and exterior of the

comparable properties

• Trainees may not– Perform inspections for FHA Roster appraisers– Sign the appraisal report



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Appraiser Selection in FHA Connection

• Lenders are responsible for ensuring that the appraiser who conducted the appraisal is correctly identified in the FHA Connection.

• Lenders who fail to ensure that the FHA Connection reflects the correct name of the appraiser will face administrative sanctions.



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Prohibition of Mortgage Brokers and Commission-Based Lender Staff from the Appraisal Process

• FHA-approved lenders are prohibited from accepting appraisals prepared by FHA Roster appraisers who are selected, retained, or compensated by a mortgage broker or a member of a lender’s staff who is compensated on a commission basis tied to the successful completion of a loan.



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Appraisal and Appraisal Management Company(AMC)/Third Party Organization Fees

• The FHA does not require the use of AMCs or third-party organizations for appraisal ordering, but they are available to ensure appraiser impartiality. FHA-approved lenders must ensure that:– FHA Roster appraisers may record the appraisal performance fee. – FHA Roster appraisers are compensated at a reasonable,

customary rate for appraisal services. – The FHA appraisal completion fee may not include a management

fee, or any activity other than the performance of the appraisal. – Management fees charged by an AMC or other third party must be

for services related to ordering, processing, or reviewing appraisals performed for FHA financing.

– AMC and other third-party fees must not exceed what is customary and reasonable.



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Affirming Existing Requirements:Prevention of Improper Influences on Appraisers

• FHA Roster appraisers must avoid actual (and the appearance of) conflicts of interest. In order to help appraisers avoid this conflicts, no members of a lender’s loan production staff or any person – (i) who is compensated on a commission basis upon the

successful completion of a loan, or – (ii) who reports, ultimately, to any officer of the lender not

independent of the loan production staff and process, shall have substantive communications with an appraiser relating to or having an impact on valuation, including ordering or managing an appraisal assignment.



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Affirming Existing Requirements:Prevention of Improper Influences on Appraisers (cont.)

• The underwriter who has responsibility for the quality of the appraisal report is allowed to request clarifications and discuss with the appraiser components of the appraisal that influence its quality.

• If absolute lines of independence cannot be achieved as a result of the lender’s small size and limited staff, the lender must be able to show there are safeguards to prevent influence and interference in the loan production process.



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Appraiser Independence Safeguards

• As the FHA transitioned from rotational assignment of appraisers to lender select (the process by which lenders may select the appraiser from those designated on the FHA Appraiser Roster), the issue of appraisal independence was amplified. – Loan officers and loan production staff are prohibited from

supervising or directing appraisers.

– The mortgagee and the appraiser avoid even the appearance of a conflict of interest, including providing the appraiser with anything of value in consideration of returning the appraisal at a given value.

– Mortgagees may not condition continued selection of an appraiser on inflating values or disregarding repair requirements.



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Appraiser Independence Safeguards (cont.)

• Mortgagees and third parties working on behalf of mortgagees are prohibited from:– Withholding, or threatening to withhold:

• Timely or partial payment for an appraisal report. • Future business for an appraiser, or demoting, terminating, or

threatening to demote/terminate an appraiser.

– Expressly or impliedly promising future business, promotions, or increased compensation for an appraiser.

– Conditioning the ordering of an appraisal report or the payment of an appraisal fee, salary, or bonus on the opinion, conclusion, or valuation to be reached, or on a preliminary value estimate requested from an appraiser.



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• Mortgagees and third parties working on behalf of mortgagees are prohibited from:– Requesting that an appraiser provide comparable sales, and

estimated, predetermined, or desired valuation in an appraisal report prior to the completion of the appraisal report.

– Providing to the appraiser an anticipated, estimated, encouraged, or desired value for a subject property or a proposed amount to be loaned to the borrower, except that a copy of the sales contract for purchase must be provided.

– Providing to the appraiser, appraisal company, appraisal management company, or any entity or person related to the appraiser, appraisal company, or management company, stock or other financial or non-financial benefits.



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• Mortgagees and third parties working on behalf of mortgagees are prohibited from:– Allowing the removal of an appraiser from a list

of qualified appraisers or the addition of an appraiser to an exclusionary list of qualified appraisers without prompt written notice to the appraiser.

• The notice must include written evidence of the appraiser’s illegal conduct including improper or unprofessional behavior, or another substantive reason for removal which constitutes, a violation of the USPAP or state licensing standards.



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• Ordering, obtaining, using, or paying for a second or subsequent appraisal or automated valuation model (AVM) in connection with a mortgage financing transaction unless: 1. There is a reasonable basis to believe that the initial

appraisal was flawed or tainted and such appraisal is clearly noted in the loan file, or

2. Unless such appraisal or automated valuation model is done pursuant to written, pre-established bona fide pre- or post-funding appraisal review or quality control process or underwriting guidelines, and so long as the lender adheres to a policy of selecting the most reliable appraisal, rather than the highest value.



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Appraiser Engagement, Knowledge of Market Area, and Geographic Competency

• Mortgagees and appraisers are responsible for the quality and accuracy of the appraisal, in the event there were foreseeable problems with the appraisal (integrity, precision, thoroughness).

• The valuation principles for appraising all residential properties are essentially the same, no matter the market in which a property is located. However, not all appraisers (even state-certified) are knowledgeable and experienced or have access to sources of data for all markets.

• The lender must determine whether an appraiser’s qualifications are sufficient to enable him to competently perform appraisals before assigning appraisals.



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Appraiser Engagement, Knowledge of Market Area, and Geographic Competency (cont.)

• The Uniform Standards of Professional Appraisal Practice (USPAP), including the Competency Rule, apply to all appraisals performed for properties that are security for FHA-insured financing.

• Per the Appraiser’s Certifications contained in the property-specific Fannie Mae/Freddie Mac appraisal reporting forms adopted by the FHA, appraisers must certify that:– “I have knowledge and experience in appraising this type of property

in this market area.” (Appraiser’s Certification # 11)

AND – “I am aware of, and have access to, the necessary and appropriate

public and private data sources, such as multiple listing services, tax assessment records, public land records and other such data sources for the area in which the property is located.” (Appraiser’s Certification #12)



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Reconsideration of Value• Reconsideration of value can only be ordered by the FHA

underwriter. • Appraisers must reconsider their analyses, based upon

relevant information available in the normal course of business, as of the date of the appraisal. – The information can include listings, comparable sales, or pending

listings, as of the date of the appraisal. After the data is considered; the appraiser is not required to change his opinion of value.

– Information and data which was not available until after the effective date of the appraisal may not be provided.

• Additional charges are prohibited, as the information was available during the appraisal and should have been considered.

• Only one reconsideration of value is permitted. Today's FHA and VA 04/22/23


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Appraiser Portability

• Mortgagee Letter 2009-29 is effective for all case numbers assigned on, or after, January 1, 2010.

• Included is a discussion of portability of appraisals for the purpose of facilitating the loan process when a borrower switches from one FHA-approved lender to another and an appraisal was ordered by and completed for the first lender.



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Appraiser Portability (cont.)• The FHA prohibits appraiser shopping, where lenders

order additional appraisals in an effort to assure the highest possible value for the property and/or the least amount of deficiencies and/or repairs noted and required by the appraiser.

• A second appraisal may be ordered by the second lender if:– The first appraisal contains material deficiencies as determined by

the Direct Endorsement underwriter for the second lender.– The appraiser performing the first appraisal is on the second lender’s

exclusionary list of appraisers. – The first lender fails to provide a copy of the appraisal to the second

lender, causing a delay in closing and posing potential harm to the borrower.



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Appraisal Transfer and Change of Client Name in Appraisal Report

• In situations where a transfer of an FHA case number between lenders becomes necessary and lender A provides a copy of the original appraisal to lender B, the appraiser cannot change the name of the client, readdress the appraisal, or transfer a completed appraisal report. In these situations, the FHA requires that the original appraiser perform a new appraisal assignment (Mortgagee Letter 9-29).



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Changes to Valuation Protocol• The particular Mortgagee Letter, communication from the

FHA to lenders, appraisers, and others regarding FHA procedure, application, etc., cited in the discussion or Appendix D of HUD Handbook 4150.2, should be referenced.

• Appraisal Reports– Any appraisal report, other than a Restricted Appraisal Report,

is now simply considered an appraisal report, a report conforming to both USPAP Scope of Work requirements and specific guidelines from HUD documenting a property appraisal.

– The “Self-Contained Appraisal Report” in USPAP is eliminated.

– The description “Summary” has been removed in USPAP. Today's FHA and VA 04/22/23


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Changes to Valuation Protocol (cont.)

• Housing Trends– All FHA Roster appraisers are required to report on

housing trends in the Neighborhood section of the applicable property-specific appraisal reporting form.

– To ensure greater transparency and accuracy of appraisals performed for FHA-insured financing, the FHA adopted the Market Conditions Addendum (Fannie Mae Form 1004MC/Freddie Mac Form 71), released November 2008.

– The Market Conditions Addendum must be included in all appraisals of properties that are to be security for FHA-insured mortgages and that are performed on or after April 1, 2009.



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Changes to Valuation Protocol (cont.)

• The Appraisal Update Report– Effective for all case numbers assigned on or after February 15, 2010,

Mortgage Letter 2010-13 stipulates that for all Appraisal Update Reports using Fannie Mae Form 1004D/Freddie Mac Form 442, the following requirements are applicable to the use of an Appraisal Update Report:

1. An original appraisal report can only be updated one time via the Appraisal Update Report.

2. The Appraisal Update Report may not be used when ordered by a lender who is not identified as an intended user in the original appraisal report unless the appraiser incorporates the original report being updated by attachment rather than by reference per Advisory Opinion 3 of USPAP.

3. The appraiser must include a completed Market Conditions Addendum, Fannie Mae For 1004C/Freddie Mac Form 71, for the subject property that is reflective of market conditions as of the effective date of the Appraisal Update Report.



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Permissible Appraisal Validity Periods

• Appraisals with No Appraisal Update Report– 150-Day Validity Period: A loan may not be insured if the loan is not

closed within 150 days from the effective date of the appraisal report (120-day validity period for original appraisal, plus 30-day extension period permitted in Handbook 4155.2).

• Appraisal with an Appraisal Update Report– 240-Day Validity Period: A loan may not be insured where the

original or underlying appraisal is subsequently updated if the loan is not closed within 240 days from the effective date of the original appraisal report being updated (120-day validity period for original appraisal, plus 120-day validity period for Appraisal Update Report).

– The 30-day extension period permitted in Handbook 4155.2 cannot be used for cases when the original appraisal is updated.



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Permissible Appraisal Validity Periods

• REO Property Appraisal– On March 8, 2010, HUD issued Mortgagee Letter 2010-08,

pertaining to the appraisal validity period for REO properties, which stipulates that all appraisals utilized to establish the listing price on an REO property owned by the Department of Housing and Urban Development, with an effective date on or after April 1, 2010, will be valid for a period of 120 days from the effective date of the appraisal.

– If the buyer is financing the purchase with an FHA insured mortgage, a valid HUD REO sales contract must be ratified within 120 days of the appraisal effective date or the mortgagee must order a new appraisal or appraisal update in accordance to the guidance given in Mortgagee Letter 2009-51 to support the mortgage transaction.

– This update is a change from the current six-month validity period.



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REO Second Appraisals to Support a Higher Purchase Price

• Mortgagee Letter 2010-08 established that effective March 8, 2010, when FHA financing is used to purchase a HUD REO property, the appraisal utilized to determine the list price will remain effective for obtaining the FHA-insured mortgage.*

• A second appraisal may not be ordered to support a purchase price that is higher than the value on the current appraisal. – A second appraisal can only be ordered to support a higher sales price if

there are material deficiencies with the current appraisal or the present appraisal will not be valid on the date of contract ratification.

– The Direct Endorsement (DE) underwriter is responsible for deciding if there are material deficiencies with respect to the current appraisal.

• The lender must document why a second appraisal was ordered and retain both appraisal copies in the loan file.



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Repair Conditions• Only repairs for property conditions that rise above the level

of cosmetic defects, minor defects, or normal wear and tear are now required. Specifically, these are livability issues.

• Appraisers must still report property deficiencies and adverse conditions. Then, the lender judges and relies upon underwriting practices to determine threats posed to occupant safety, and/or jeopardized soundness and structural property integrity. Inspections or repairs may then be assigned.

• An “as is” appraisal is permitted for existing properties when minor property deficiencies, which result from deferred maintenance and normal wear and tear, do not affect occupant safety, and property security or soundness.



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Repair Conditions (cont.)

• The FHA no longer requires repairs for minor cosmetic deficiencies to bring a property into compliance with FHA minimum property requirements. These items in Chapter 3 of the Handbook, 4150.2, CHG-1 no longer apply:– All-weather road surfaces

– Debris and trash in crawl spaces

– Poor workmanship

– Lack of handrail(s) on stairs

– Bare floors, badly soiled carpeting, and non-hazardous defects in plaster and sheetrock



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• The following items no longer require repair for existing properties:

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• The following items no longer require automatic inspections for existing properties, however, require inspections only for the following circumstances:1. Wood destroying insects/organisms inspections:

• If there is evidence of active infestation.• If it is mandated by the sate or local jurisdiction.• If it is customary to the area.• At the lender’s discretion.



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2. Well inspections if:– It is mandated by state or local jurisdictions.

– There is knowledge that well water may be contaminated.

– The water supply relies on a water purification system due to the presence of contaminants.

– There is evidence of:• Corrosion of pipes.• Areas of intensive agriculture within one quarter of a mile.• Coal mining or gas drilling operations within one quarter of a

mile. • Dump, junkyard, landfill, factory, gas station, or dry cleaning

operation within one quarter of a mile.• Unusually objectionable taste, smell, or appearance of well

water.



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3. Septic test or inspection:– If there is evidence of system failure.

– If it is mandated by state or local jurisdiction.

– If it is customary to the area.

– At the lender’s discretion.

4. Flat and/or unobservable roof conditions if there is:

– 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.)• Examples of property conditions that may represent a risk to

the health and safety of the occupants or the soundness of the property and for which the FHA will continue to require automatic repair for existing properties include:– 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 shingles must be removed before re-roofing)

– Evidence of structural problems – 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 Adoption of the Uniform Appraisal Dataset (UAD)

• The FHA announced on August 11, 2011 via Mortgagee Letter 2011-30 that the agency has adopted the Uniform Appraisal Dataset (UAD) and two of the UAD compliant appraisal reporting forms effective January 1, 2012.

• The UAD is the result of collaboration between Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, at the direction of the Federal Housing Finance Agency (FHFA), to standardize data reporting quality and improve the collection of electronic appraisal data.

• UAD field requirements for FHA Appraisal Reports are generally mirrored with that specified by Fannie Mae and Freddie Mac, but there are added compliance requirements.



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FHA Adoption of the Uniform Appraisal Dataset (UAD) (cont.)

UAD Field Specific Requirement

Appraisal Form Section FHA Requirement

Select relevant subject condition rating

Improvements “Subject to” selecting the as-repaired condition

Input room count and finished/unfinished basement areas

Sales Comparison Grid Basement

Finished Rooms Below Grade

Enter only verifiable data and cite source in the addendum

Appraisal made “as-is,” “subject to”…

Reconciliation “As-is” only for HUD REO or PFS properties

Enter appraiser trainee and supervisory appraiser information

Appraiser Certification (Pg. 6)

Supervisory appraisers and trainees are not permitted



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FHA Residential General Reporting Requirements (cont.)

• The FHA has adopted the use of the following Fannie Mae appraisal reporting forms:1. Uniform Residential Appraisal Report (Fannie Mae Form 1004) for

all one-unit single-family dwellings

2. Manufactured Home Appraisal Report (Fannie Mae Form 1004C) for all manufactured homes

3. Individual Condominium Unit Appraisal Report (Fannie Mae Form 1073) for all individual condominium units

4. Small Residential Income Property Appraisal Report (Fannie Mae Form 1025) for all two- to four-unit single-family dwellings

5. Appraisal Update and/or Completion Report (Fannie Mae Form 1004D/Freddie Mac Form 44)

6. Market Conditions Addendum (Fannie Mae Form 1004MC/Freddie Mac Form 71)



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• UAD reporting compliance is only required for the following appraisal reporting forms:– Uniform Residential Appraisal Report (Fannie Mae Form

1004) for all one-unit single-family dwellings

– Exterior only Residential Appraisal Report for a one-unit single-family dwelling (2055)

– Individual Condominium Unit Appraisal Report (Fannie Mae Form 1073) for all individual condominium units

– Exterior only Individual Condominium Unit Appraisal Report (Fannie Mae Form 1075)

• The appraisal process is used to determine a property’s minimum requirements/eligibility standards for FHA-insured mortgages.



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The FHA Appraisal is made:

Under the following conditions:

As Is

1. There is/are no repair(s), alteration(s), or inspection conditions noted by the appraiser, or

2. Establishing the As Is value for a regular 203(k), or3. The property is being recommended for rejection

Subject to completion per plans and specifications

1. Proposed construction where construction has not started, or2. Under construction but not yet complete (less than 90%), or3. Regular 203(k)

Subject to repairs or alterations

1. Repair or alteration condition(s) noted by the appraiser, or2. Streamline 203(k), or3. Under construction, more than 90% complete with only minor finish

work remaining (e.g., buyer preference items like floor coverings, appliances, fixtures, landscaping, etc.). This eliminates the need for construction exhibits

Subject to required inspection

Required inspection(s) noted by the appraiser



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Minimum Property Requirements and Minimum Property Standards

• For new construction to be eligible for FHA financing, it must comply with HUD’s Minimum Property Standards.

• Existing construction must comply with HUD’s Minimum Property Requirements.

• The appraiser must denote any deficiency in the appraisal report.

• The lender will determine which repairs for existing properties must be made for the property to be eligible for FHA-insured financing.

• Cosmetic repairs are not required; however, they are to be considered in the overall condition rating and valuation of the property.



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Minimum Property Requirements and Minimum Property Standards (cont.)

• Appraisers determine during the appraisal whether repairs, alterations, or inspections are essential to eliminate threatening property conditions

• 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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Minimum Property Requirements and Minimum Property Standards (cont.)

• Properties are unacceptable until the defects or conditions have been remedied and the probability of further damage eliminated.

• Defective conditions include:– Defective construction

– Other readily observable conditions that impair the safety, sanitation, or structural soundness of the dwelling

• Conditions requiring inspection or testing by qualified individuals: – Infestation—evidence of termites

– Inoperative or inadequate plumbing, heating, or electrical systems

– Structural failure in framing members

– Leaking or worn-out roofs

– Cracked masonry or foundation damage

– Drainage problems

• Appraisers should not recommend inspections only as a means of limiting liability.



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On-site Inspection by the Appraiser

• Appraisers must have full access to property improvements.

• If unable to visually evaluate the improvements in their entirety, appraisers must contact the lender and reschedule a time when a complete visual inspection can be performed. – This includes access to the crawl space and attic.

• The appraiser is not required to disturb insulation, or move personal items, furniture, equipment, plant life, soil, snow, ice, or debris that obstruct access or visibility.



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General Site and Location Requirements

• Unacceptable Locations– FHA guidelines require that a site be rejected if the property being

appraised is subject to hazards, environmental contaminants, noxious odors, offensive sights, or excessive noises to the point of endangering the physical improvements or affecting the livability of the property, its marketability, or the health and safety of its occupants.

– Lenders must be contacted prior to appraisal completion.

• Site Hazards and Nuisances– The appraiser must note and comment on all hazards and nuisances

affecting the subject property including: • Subsidence; operating and abandoned oil and gas wells; abandoned

wells; slush pits; heavy traffic; airport noise and hazards; proximity to high pressure gas, liquid petroleum pipelines; radio/TV transmission tower; and excessive hazard from smoke, fumes, odors, and stationary storage tanks containing flammable or explosive material.



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General Site and Location Requirements (cont.)

• Soil Contamination– Check readily observable evidence of hazardous substances in the soil.

Conditions that could indicate soil contamination include pools of liquid, lagoons, stressed vegetation, or odors. If any of these conditions exist, further analysis or testing is required. Note proximity to sites that could contain hazardous wastes.

– If there is any readily observable surface evidence of leakage from an underground storage tank, further analysis or testing is required.

• Grading and Drainage– Check for observable evidence of grading and drainage problems. Proper

drainage control measures may include gutters, or appropriate grading or landscaping to divert the flow of water away from the foundation. If the grading does not provide positive drainage from the improvements, make a repair requirement.

– Note any readily observable evidence of standing water near the property that indicates improper drainage. If the standing water is problematic, make a repair requirement in the Site section of the report.



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General Site and Location Requirements (cont.)

• Individual Water Supply and Sewage Systems– Identify the type of utilities in the appraisal report. – Appraisers must note any readily observable deficiencies regarding

private well or septic systems. – The appraiser is also required to report on the availability of

connection to public and/or community water/sewer systems. The lender is responsible for the determination of the feasibility for requiring connection.

• Private Road Access and Maintenance– Private streets must be protected by permanent recorded easements

or owned and maintained by a homeowners association. – Each property must have vehicular or pedestrian access. – The FHA defines an all-weather surface as a road surface over

which emergency vehicles can pass in all types of weather.



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General Requirements for the Dwelling and Improvements

• Roofing– Identify roofing material type and the condition.*

• Mechanical Systems– Report on the condition of the improvements, which

include mechanical systems.*– Check mechanical, plumbing, and electrical systems in

the subject property to ensure they are in proper working order. This examination includes observing turned on system performance.

*The nature and degree of any noted deficiency will determine if it should be noted in the appraisal.



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General Requirements for the Dwelling: Mechanical Systems

• Electrical System– Examine the electrical system to ensure that there is no visible frayed wiring

or exposed wires and note if the amperage is adequate for the property.

– Operate a representative number of lighting fixtures, switches, and receptacles to note any deficiencies. If the appliances appear undersized, determine if there is adequate amperage to run “standard” appliances.

– The appraiser is not required to insert any device inside the panels or to dismantle any electrical device or control.

• Plumbing System– Operate the toilets and faucets to determine that the plumbing system is

intact, that it runs cold and hot water, does not emit foul odors, and that there is no observable evidence of leaks or structural damage under fixtures.

– Turn on cold-water faucets to check water pressure and flow.

– Examine the property’s septic system for signs of failure or malfunction.



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Other Health and Safety Deficiencies

• Other Health and Safety Deficiencies– Address all health and safety issues, physical deficiencies, or

adverse conditions that affect the livability, soundness, or structural integrity of the property. The nature and degree of these issues will determine if the deficiency is noted in the report.

• Lead-Based Paint Hazards– For any home built prior to 1978, check for evidence of faulty

paint surfaces, including peeling, scaling, or chipping paint.

– For all FHA-insured properties, correction is required to all defective paint surfaces in or on structures and/or property improvements built before January 1, 1978.*



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General Assignment Requirements

• FHA appraisals are subject to the following:– Scope of work– Intended use– Intended user– Definition of market value

• Modifications, additions, or deletions to the intended use, intended user, definition of market value, or to the assumptions and limiting conditions are not permitted.

• The appraiser may expand the scope of work to include any additional research or analysis necessary. Modifications or deletions to certifications are not permitted.



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General Assignment Requirements (cont.)



• Scope of Work– The scope of work for this appraisal is defined by the

complexity of this appraisal assignment and the reporting requirements of this appraisal report form, including the following definition of market value, statement of assumptions and limiting conditions, and certifications.

– The appraiser must, at a minimum:1. Perform a complete visual inspection of the interior and exterior areas

of the subject property

2. Inspect the neighborhood

3. Inspect each of the comparable sales from at least the street

4. Research, verify, and analyze data from public and/or private sources

5. Report the analysis, opinions, and conclusions in this appraisal report

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General Assignment Requirements (cont.)

• Intended Use– The intended use of the appraisal report is for the lender/client

to evaluate the subject property of the appraisal for a mortgage finance transaction.

• Intended User– The intended user of this appraisal report is the lender/client

and HUD/FHA.

• Definition of Market Value– The definition of market value is the most probable price that a

property should bring in a competitive and open market under all conditions requisite to a fair sale, assuming the price is not affected by undue stimulus.



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Statement of Assumptions and Limiting Conditions



1. Matters of a Legal Nature– The appraiser will not be responsible for legal matters that affect the

property being appraised or the title, except for information exposed during the research while performing this appraisal. The title is assumed good and marketable.

2. Sketch of Improvements– The appraiser has provided a sketch in this appraisal report to show

the estimated dimensions (determination of size) of the improvements.

3. Special Flood Hazard Area– The appraiser has examined the flood maps that are provided by the

Federal Emergency Management Agency and has noted in the appraisal report whether any portion of the subject site is located in an identified special flood hazard area.

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Statement of Assumptions and Limiting Conditions (cont.)

• Court Testimony– The appraiser will not give testimony or appear in court due to his

appraisal of the subject property, unless arrangements to do so have been made beforehand, or are required by law.

• Adverse Conditions– The appraiser has noted in the appraisal report any adverse

conditions observed during the inspection of the subject property or became aware of during the research involved in performing this appraisal. Unless stated, the appraiser has no knowledge of any unapparent physical deficiencies, making the property less valuable.

– The appraiser will not be responsible for any conditions that exist or situations where testing might be required to discover whether such conditions exist. This appraisal report must not be considered as an environmental assessment of the property.



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Statement of Assumptions and Limiting Conditions (cont.)

• Repairs or Alterations– The appraiser has based his appraisal report

and valuation conclusion for an appraisal that is subject to satisfactory completion, repairs, or alterations on the assumption that the completion, repairs, or alterations of the subject property will be performed in a professional manner.



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Appraiser’s CertificationThe appraiser must agree to the following protocols:

1.Scope of Work– Development of and reported appraisal in accordance with the scope of work

requirements.

2.Complete Visual Inspection– Complete visual inspection of interior and exterior areas of the subject property.

Conditions of the improvements have been reported specifically and accurately. Physical deficiencies have been identified that might affect the livability, soundness, or structural integrity of the property.

3.USPAP Compliant– The appraisal was created in agreement with USPAP requirements adopted and

circulated by the Appraisal Standards Board of The Appraisal Foundation.

4.Sales Comparison– An opinion of market value of the property is based on the sales comparison

approach. There is adequate comparable market data to develop a reliable sales comparison approach for the appraisal. The cost and income approaches were considered, but were not developed unless indicated.



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Appraiser’s Certification (cont.)5. Current Agreement for Sale

– Any offering for sale in 12 months prior to the appraisal, prior sale within three years, or current agreement for sale of the subject property has been researched, verified, analyzed, and reported, unless otherwise indicated.

6. Prior Sales of Comparable Sales– Prior sales of the comparable sales for at least one year prior to the date of sale

of the comparable sale has been researched, verified, analyzed, and reported, unless otherwise indicated.

7. Most Similar Comparable Sales– Locationally, physically, and functionally similar comparable sales to the subject

property have been selected.

8. Combining Land Sales– Comparable sales were not used that were the result of combining a land sale

with the contract purchase price of a home that has been/will be built on the land.

9. Adjustments to Comparable Sales– Adjustments to comparable sales showing the market’s reaction to differences

between the subject property and comparable sales were reported.



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Appraiser’s Certification (cont.)10. Verification

– All information in the report provided by parties who have a financial interest in the sale/financing of the subject property was verified from nonbiased sources.

11. Competency– The appraiser has knowledge and experience in appraising this type

of property in this market area

12. Resources– There has been awareness and access to the necessary public and

private data sources.

13. Reliable Sources– The information, estimates, and opinions from other parties

expressed in this appraisal report are obtained from reliable sources.



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Appraiser’s Certification (cont.)14.Factors Impacting Value

– Factors that have an impact on value with respect to the subject neighborhood, subject property, and the proximity of the subject property to adverse influences in the development of the opinion of market value have been considered.

– The appraisal report has noted any adverse conditions observed during the inspection of the subject property or uncovered during the research involved in performing this appraisal.

– These conditions have been considered in the analysis of the property value, and reported on the effect of the conditions on the value and marketability.

15.Knowingly Withholding Information– No significant information from this appraisal report has been

withheld, and all statements and information in this appraisal report are true and correct to the best of the appraiser’s knowledge.



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Appraiser’s Certification (cont.)

16.Professional Analysis– The appraiser’s own personal, unbiased, and

professional analysis, opinions, and conclusions, have been stated in this appraisal report.

17.Present or Prospective Interest– The appraiser has had no interest in the subject property,

or personal interest or bias with the participants of the transaction. The analysis or opinion of market value has not been based on any discriminatory manner in accordance with the law.

– Effective January 1, 2012, appraisers must state they have not performed services for the subject property in the three years preceding their assignment.



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Appraiser’s Certification (cont.)

18. Employment and Compensation– This report was not conditioned on any agreement or

understanding that a predetermined specific value, minimum value, range of value, or value that favors any cause or result will be calculated.

19. Personally Prepared Report– All conclusions and opinions about real estate were personally

prepared and any individuals that helped prepare this report are qualified and named in the report. No change to this report is authorized.

20. Identified Lender/Client– The lender/client has been identified who will receive this

appraisal report.



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Appraiser’s Certification (cont.)21. Lender/Client Disclosure and Distribution of Appraisal Report

– The lender/client may disclose or distribute this appraisal report to the following individuals/groups without having to obtain the appraiser’s or supervisory appraiser’s consent:

• The borrower• Another lender at the request of the borrower• The mortgagee or its successors and assigns • Mortgage insurers• Government-sponsored enterprises• Other secondary market participants • Data collection or reporting services • Professional appraisal organizations • Any department, agency, or instrumentality of the United States • Any state, the District of Columbia, or other jurisdictions

22. Disclosure and Distribution by Appraiser– The appraiser is aware that disclosing the appraisal report is subject

to laws and regulations and provisions of USPAP.Today's FHA and VA 04/22/23


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Appraiser’s Certification (cont.)23. Who May Rely on Appraisal Report

– The borrower, the mortgagee, and other secondary market participants may rely on the appraisal report as part of mortgage finance transactions that involve any of these parties.

24. Electronic Signature– If this appraisal report was transmitted as an “electronic record”

containing an “electronic signature,” the appraisal report will be as effective, enforceable, and valid as if a paper version of this appraisal report was delivered with an original handwritten signature.

25. Civil Liabilities and Criminal Penalties– Any intentional or negligent misrepresentation(s) contained in this

appraisal report may result in civil liability and/or criminal penalties including, but not limited to, fine or imprisonment or both under the provisions of Title 18, United States Code, Section 1001, et seq.



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Appraiser Signature

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

• The signature, as defined in USPAP, is personalized evidence indicating authentication of the work completed by the appraiser and the acceptance of responsibility for content, analysis, and the conclusions of the report. It may be an original or electronic signature.

• Per special UAD requirements of the FHA, the certification of an FHA appraisal may NOT be signed by a “trainee” or by an appraiser acting as a “supervisory appraiser.”



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Other Reporting Requirements

• Required Attachments/Exhibits for FHA Appraisals– Street Map

• The map must be legible and show the location of the subject property and comparable sales.

– Sketch• The building sketch must show the gross living area above

grade, and indicate if a roof is present in areas where applicable.• Calculations used to arrive at the estimated gross living area

must be shown.• An interior sketch or floor plan is required for properties exhibiting

functional obsolescence attributable to the layout.



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Other Reporting Requirements (cont.)

• Subject Photographs– 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 photograph.– Street scene photo to include a portion of the subject site.– If the subject property is proposed construction and the improvement

has not started, a photograph that shows the grade of the vacant lot should be taken.

• Comparable Photos– Photos depicting the front view of each comparable sale utilized

must be those taken by the appraiser and are considered evidence of compliance with the scope of work. These photos are proof of having inspected each comparable sale from the street.

– Use of MLS photos to exhibit comparable condition at the time of sale is acceptable along with the appraiser’s own photos.



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Summary

1. The FHA has adopted the use of four of Fannie Mae’s revised appraisal reporting forms: The URAR 1004 for all one-unit single-family dwellings; Fannie Mae Form 1004C for all manufactured homes; Fannie Mae Form 1073 for all individual condominium units; and Fannie Mae Form 1025 for all two- to four-unit single-family dwellings.

2. The appraiser may appraise a home under construction that is 90% or more complete, without benefit of plans.

3. The FHA requires repairs only for property conditions above the level of cosmetic defects, minor defects, or wear and tear.



Summary (cont.)4. The appraiser must, at a minimum, perform a complete visual

inspection of the interior and exterior areas of the subject property; 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; and report his analysis, opinions, and conclusions in the appraisal report.

5. For FHA appraisals, the only signature permitted is that of the lender-selected FHA Roster appraiser. Supervisory signatures are not permitted.

6. The intended users of an FHA Appraisal Report are 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 occur.


Chapter 3 Quiz

1. According to the 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



Chapter 3 Quiz

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 appraiser’s review of plans’ specifications.

c. subject to completion.

d. subject to repairs or alterations.



Chapter 3 Quiz

3. An appraiser who was once on the 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.



Chapter 3 Quiz

4. Which of the following is true about the 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.



Chapter 3 Quiz

5. To check a plumbing system, the appraiser musta. check for leaks around fixtures.

b. flush toilets.

c. turn on a representative number of faucets.

d. All of the above are correct.



Chapter 3 Quiz

6. In an FHA appraisal, the appraiser’s certification states thata. 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.



Chapter 3 Quiz

7. Front and rear photos of the subject should showa. accessory structures.

b. the grade of the site.

c. opposite sides of the structure.

d. surrounding properties.



Chapter 3 Quiz

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.



Chapter 3 Quiz

9. Which of the statements about recently To qualify for FHA financing, the subject property, in most cases, musta. 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 are correct.



Chapter 3 Quiz

10. The subject floor plan sketch must includea. accessory structures.

b. below-grade finishes.

c. garages.

d. interior walls.



Chapter 3 Quiz

11. A reconsideration of value may includea. information on listings, sales and pending sales,

but limited to properties in the MLS.

b. information on listings, sales and pending sales, which are available to the appraiser in the normal course of business as of the effective date of the appraisal.

c. information on listings, sales, and sales which are pending at the time of the request for the reconsideration of value.

d. the original CMA the agent used to price the house for sale.



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