12th May 2015

Top FHA appraisal questions answered

Answers to the 8 most frequently asked questions about the new FHA Handbook 4000.1

FHA-1The Federal Housing Administration recently announced changes to its appraisal policies found in the Single Family Housing Policy Handbook, or HUD Handbook 4000.1. FHA appraisers must be in compliance with these changes by September 14, 2015 (note the previous compliance date was June 15, 2015).

To help get you started on the changes, we compiled the most frequently asked questions about the new FHA Handbook 4000.1. All of the questions came from students attending our Live Webinars: HUD Handbook 4000.1: Changes, Big and Small.

Is the new FHA Single Family Housing Policy Handbook 4000.1 intended to replace current HUD handbooks, including 4150.2?

Handbook 4000.1 is intended to supersede several HUD Handbooks in their entirety, including 4905.1 – Requirements for Existing Housing One to Four Family Units, 4150.2 – Valuation Analysis for Single Family One to Four Unit Dwellings, and 4240.4 – 203K Rehabilitation Home Mortgage Insurance.

What is the effective date for the requirements of Handbook 4000.1?

The requirements in Handbook 4000.1 apply to case numbers assigned on or after September 14 2015. In industry conference calls, HUD officials have encouraged appraisers and mortgagees to begin using the new Handbook immediately, although they are not required to do so until September 14.

Are appraisers required to complete a three-year sales history on the comparable sales in FHA appraisals?  

One of the significant changes to FHA policy is the requirement for appraisers to complete a three-year prior sales history of the comparable sales and listings used in the appraisal. This is outlined in the Appraisal Report and Data Delivery Guide issued by HUD. In addition, two sources are recommended for this prior sales history search – local MLS and local public records, at a minimum.

How should an appraiser handle the prior sales history requirement in non-disclosure states?

According to the Appraisal Report and Data Delivery Guide, page 34: “A property’s location in a ‘non-disclosure state’ does not remove the appraiser from the requirement to research, report, and analyze the prior sale history of the subject and comparable properties.” The appraiser must make an attempt to obtain this information and is required to report the information that is reasonably obtainable. The appraiser must also “describe the difference between recent transfers versus the current sale or offering and the effect on the appraisal problem.”

Has HUD/FHA changed any of the requirements for observing the attic and crawl space? 

No; the requirements for an appraiser to observe the crawl space and attic have not changed. FHA prefers that the appraiser make a full entry into the attic or crawl space, but if that is not possible, a minimum entry of “head and shoulders” is acceptable. If the attic and/or crawl space are not accessible, the appraiser must state that fact in the appraisal report.  The mortgagee will determine property eligibility.

Is it true that FHA has removed the fall distance requirement for electric power line towers and other towers?

Yes!  The requirement to check fall distance no longer exists. An appraiser is still required to notify the mortgagee if the dwelling or related property improvement is located within an easement or if they appear to be located “within an unsafe distance” of a power line or tower. In addition, neither power transmission lines nor local distribution lines may pas directly over the dwelling, any structure or related property improvement such as pools and spas.

Is it true that the new Handbook 4000.1 contains a requirement for appraisers to operate the appliances in the subject property?

Yes. The Handbook states “Cabinets and built-in appliances that are considered Real Property must be present and operational.” The Handbook goes on to state, “The Appraiser must operate all conveyed appliances and observe their performance.” In industry conference calls, representatives from HUD have reiterated this requirement.

What is the appraiser’s responsibility regarding MPR repairs?  

The appraiser is responsible to observe, analyze and report all repairs necessary for the subject property to meet HUD’s minimum property requirements (MPR) for existing properties or minimum property standards (MPS) for new construction. In addition, the appraiser must provide a cost to cure and a photograph of the deficiency. The mortgagee (i.e., the underwriter) will determine which repairs are required. The mortgagee has the authority to require additional repair items, and/or to waive any or all of the appraiser’s identified repair items.

If you have more specific questions about the NEW FHA Handbook 4000.1, check out our upcoming Live Webinar: HUD Handbook 4000.1 Changes, Big and Small or enroll in an online or live CE FHA seminar today.

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