FHA just announced that the deadline to upgrade to the certified level is October 1, 2009. Any appraiser that is on the roster who is not certified will no longer be eligible for FHA appraisals after the October 09 deadline. On October 1, 2008, FHA stopped taking applications from licensed appraiser to join the FHA roster. All licensed appraisers currently on the roster were in limbo because there were no details as to how long they would remain active on the roster.

I just love my Google Alerts. I have several alerts based on FHA and appraisals and I just had to write about one of the articles in the alert I found. I clicked on a link that brought me to an appraiser's website who is willing to trade appraisals for people's stuff instead of cash. He was asking for guitar stuff, video games, hockey gear, tools, business services, and anything else he could use.

I can only imagine the look on his accountant's face when he gives him the list of unwanted stuff people traded for his appraisals. Everyone wants a discount, I wonder how he would work that out. Hmm, I'll do it for 4 video games, a hockey stick, and I'll drop the request for the Chia Pet collection.  Are customers going to look elsewhere in the hopes of trading less crap with another appraiser who doesn't charge as much? Is this even allowed with USPAP?

FHA realized that they dropped the ball back on February 7, 2008, when they lowered the requirements to become an FHA approved appraiser. Basically if you were an appraiser and you had a pulse you could join the FHA roster. 

FHA has been like a knight in shining armor to the lending world as it slays the ARM dragon and helps the homeowner damsels in distress. This fairy tale world was created in part by the serious lack of lending standards in place during the refinance boom. Basically if you were a homeowner and were breathing you could qualify for some type of loan.

There were many unscrupulous and/or inexperienced appraisers a.k.a. "Skippy" who helped to hyper inflate the market and cause the turmoil we all have come to know and love today. The market is currently in a re-adjustment stage and many of the Skippies are without work. FHA volume is up and they opened their arms wide to embrace Skippy and keep food on his table when they dropped the test requirement. Now Skippy was enabled to do to FHA what they did in the conventional market. 

Thankfully, the light has come on for FHA and they realized that maybe letting anyone and everyone appraise for FHA was not the best of ideas. A bill recently passed by the House (H.R. 3221) under Section 1404 "Revised Standards for FHA Appraisers" requires that appraisers (A) "be certified" and (B) "have demonstrated verifiable education in the appraisal requirements established by the Federal Housing Administration under this subsection.'' 

This bill eliminates the open invitation from FHA and now sets standards to those applying. It requires a higher license level in which will help to eliminate many of the inexperienced appraisers who have less education and appraisal experience than required for the higher certified levels. I am not saying that all licensed level appraisers are in this boat. I know and respect many appraisers who are licensed instead of being certified. Many of them made this choice because back in the day it made the most sense based on the home values in the areas they appraised. I also know some certified appraisers who aren't worth a darn and I wouldn't trust them to appraise my dog's house let alone a real house. 

The second thing this bill does is require appraisers to take some kind of course on FHA in order to be approved for their roster. FHA appraisals are not difficult if you know what you are doing. FHA requires additional things than a conventional appraisal does not. It makes sense that in order to be approved for FHA you have the proper training and knowledge of FHA's requirements. 

It is my hope that the floodgates did not let in too many Skippies. It appears as if anyone who became approved after 2/7/08 up until this bill goes into effect will remain on the roster regardless of their license level or FHA educational background. FHA can help to save the day if they can keep greedy and unethical people from poisoning the water.

This may be old news for some people but not everyone is familiar with the changes made by FHA.

FHA Changes Part II          FHA Changes Part I

Excerpts from MORTGAGEE LETTER 2005-ML-48 This Mortgagee Letter is effective for all appraisals performed on or after January 1, 2006.

FHA no longer mandates automatic inspections for the following items and/or conditions in existing properties:

Wood Destroying Insects/Organisms: inspection required only if evidence of active infestation, mandated by the state or local jurisdiction, if customary to area, or at lender's discretion

Well (individual water system): test or inspection required if mandated by
state or local jurisdiction; if there is knowledge that well water may be
contaminated; when the water supply relies upon a water purification system
due to presence of contaminants; or when there is evidence of:
    Corrosion of pipes (plumbing)
    Areas of intensive agriculture within 1/4 mile
    Coal mining or gas drilling operations within 1/4 mile
    Dump, junkyard, landfill, factory, gas station, or dry cleaner within 1/4 mile
    Unusually objectionable taste, smell or appearance of well water
(superseding the guidance in Mortgagee Letter 95-34 that requires well
water testing in the absence of local or state regulations)

Septic: test or inspection required only if evidence of system failure, if
mandated by state or local jurisdiction, if customary to the area, or at
lender's discretion

Flat and/or unobservable roof

Examples of conditions that will continue to require automatic inspections include, but are not limited to:

1. Standing water against the foundation and/or excessively damp basements
2. Hazardous materials on the site or within the improvements
3. Faulty or defective mechanical systems (electrical, plumbing, or heating)
4. Evidence of possible structural failure (e.g., settlement or bulging
foundation wall)

I would like to pick your brain for a minute and try to get a better understanding as why some RE Agents include interior pictures of homes they list and others do not. I also wonder why sales concessions are not always listed. Is it personal preference, legal reasons, office policy, how someone you looked up to did it, etc?

Interior photos are how appraisers look inside the comparable sales to gauge their quality and condition. It is much easier to look at interior pictures than it is to interpret the wording in the listing. Personally I think it makes the listing agent stand out from those who don't include pictures. I feel the same way for appraisers. I think those who include interior pictures stand out from those who don't. I know many who don't include any interior pictures in their reports unless requested to do so. I think including pictures makes for a better report as pictures can say things better than people can sometimes.

Sales concessions can play a big role in inflating the value of a property if not disclosed. If a seller gives money back to the buyer to close the deal then that should be deducted from the value of the sales price. I'm not talking about an allowance for new carpet or improvements for the house. I strictly talking about the thousands of dollars paid back to the buyer at closing. If you pay $10 for something and get $5 change back, the sales price is $5, not $10. The whole nation is hurting from all of the fraud and foreclosures that took place over the past couple of years. Now its time to pay the piper. Reporting concessions is something I think that the powers that be will be cracking down on in the near future.

I've discovered many times a sales concession being involved in a transaction after talking with the listing agent over the phone; yet there was no mention of them in the mls sheet. I understand that there is the whole client confidentiality issue but I've been told that can be resolved by having a release signed. As an appraiser I am required to find the most recent and similar sales to the property I am appraising and grid them in my report. I am supposed to adjust for differences in condition, amenities, and sales concessions. I don't mind doing so as its part of the job and I enjoy talking to people and making new contacts.

Now I'm not complaining and I hope I don't sound that way. We all have dealt with pushy people or clients who want instant information and constant updates. We are a society built upon instant gratification. It can NEVER be fast enough whether it be cell phones, cars, the Internet, report turn times, information access, drive-thrus, tax refunds, etc. How many of you with DSL would sacrifice a limb rather than going back to dial up?

Its just that there aren't enough hours in the day to attend all of the open houses to see the condition of the properties, or to call every listing agent for every property we are considering using as a comparable, or to return their call because we were on the other line calling the next agent on our list of 20+ to call that day. RE Agents are extremely busy people too and do not always have the time to return an appraisers phone call right away. Appraisers have a small time window to complete the report in order to keep the client happy and the phone ringing. The lender/client wants the report yesterday and doesn't want to wait for the appraiser to finish playing phone tag to verify all of the info needed.

So getting back to my original questions, Why do some agents not include interior photos in their listings? Why do some agents not include sales concessions in their listings?

This may be old news for some people but not everyone is familiar with the changes made by FHA.

FHA Changes Part I 

FHA's primary area of concern is in these three areas: Safety, Security, and Soundness. Properties with conditions that threaten or could threaten the health and safety of its occupants or the soundness of the property are still required by FHA to be repaired. MORTGAGEE LETTER 2005-ML-48 (effective as of January 1, 2006) lists these conditions as requiring an automatic repair:

* Inadequate access/egress from bedrooms to exterior of home
* Leaking or worn out roofs (if 3 or more layers of shingles on 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 pre-1978
* Defective exterior paint surfaces in home constructed post-1978 where the
finish is otherwise unprotected.

Appraisers are still required to document and report defects for the subject property regardless of the severity of the defect. Refer to my previous blog, FHA Changes Part I, for a list of what FHA considers minor cosmetic defects that no longer require automatic repair. It is now up to the lender to review the appraisal to determine if any of the defects reported affect the Safety, Security, and Soundness of the property and if they will require immediate repair.

Check back for Part III when I discuss what additional inspections are no longer mandated by FHA for existing properties. 

OK I've made some changes to my website, www.miller-appraisals.net, after reading and following the advice of many posts from the people here. I am looking for feedback on my website and suggestions to make it better. Please let me know what you like and don't like about my site and any suggestions you may have for me. I thank you all in advance for you help.

Kenneth J. Miller

Miller Appraisals

My name is Kenneth J. Miller and I am not a killer. I hear it all the time regarding appraisers killing another deal because the appraisal report came in too low. My wife used to work for a mortgage broker and I'd hear it all the time from loan officers in her office. This drives me crazy. Don't shoot the messenger. It's not the appraisers fault a property isn't worth enough to make the loan work. Our job is to give our opinion of value on the property. It's supposed to be an honest and supported opinion. We can't just make up stuff to get a loan approved. There are appraisers out there who do that sorta stuff and you read about them all the time as the real estate fraud rings get busted. This is a major reason the foreclosure pandemic has infected this Nation. Lenders big and small are dropping like flies from all of the poisonous loans they took on. You don't blame the dentist when he tells you that you have a cavity. You don't blame your accountant when she tells you your tax refund isn't as large as you had hoped. You don't blame the scale when it registers 10 extra pounds. Why get mad at the appraiser for being honest and telling it how it is. So the next time a loan doesn't go through because the property didn't appraise as high as it needed to, please don't blame the appraiser. Most of us are really nice people.

Effective February 7, 2008, FHA will no longer require the HUD examination on FHA reporting and examination to become eligible to do FHA appraisals. One must be licensed or certified to be placed on the roster. FHA feels that the testing required to become an appraiser is sufficient and that requiring an FHA exam is overkill. What this means is that Skippy doesn't have to bother looking up the answers online for the 10 question long "examination" required to become FHA approved anymore. Not only can Skippy do a sloppy report for the conventional market; he can mess up things in the FHA market too.

FHA already made it too easy to become FHA approved when they decided to drop the dreaded examination and replace it with the questionnaire you fill out online. I've heard horror stories about the old exam and how hard it was to pass if you didn't study and know your stuff. I studied for the exam. I lost sleep thinking about taking it. I finally mustered the courage to take it and FHA replaced it with the 10 question survey. I guess FHA dropped it all together because it was still too hard for Skippy to pass.

For those of you who don't know, Skippy is the poorly trained or unethical appraiser who does sloppy appraisal reports filled with errors, omissions, and/or lies. Skippy is the best friend of crooked loan officers, crooked real estate agents, and crooked property investors. He ALWAYS gets the value needed to make the deal work. He charges a lot LESS than than other appraisers. He is so FAST that the report is completed before he takes his lunch break. He NEVER mentions things that could kill the loan.

Now this doesn't mean that anyone who gets approved for FHA in the future is a Skippy. There are more ethical and honest appraisers out there than there are Skippies. They work hard day in and day out to keep the dirt off their names. I truly believe that in my heart. It's just that the bad appraisers fling mud in our eyes and give all appraisers a bad rap.

The real estate market is in such turmoil right now and everyone involved in it is pointing fingers at each other. It just doesn't seem prudent to relax your standards even more and allow anyone and everyone a spot on the roster without proving first that they belong there. The market is where it is now because of the relaxed standards that are in place. That's why the standards are increasing for many of us in the industry. It's too easy for greedy and fraudulent people to make a ton of money while destroying the lives of the people they are supposed to be helping.

For those of you out there who still care about the Real Estate Industry and are honest, hardworking individuals, I ask that you be careful when choosing a new appraiser. Please don't base your decision solely on how much he charges or how fast he gets you the report. When you decide on trying a new restaurant do you base your decision on how cheap the food costs or do you base it on how good the meal is? I firmly believe that you get what you pay for. Not all appraisers who are faster or cheaper than other appraisers are a Skippy. There are many great appraisers out there who have to be that way to stay competitive with Skippy.

Well that's my two cents worth.

This may be old news to some but there are many people out there who don't know about the changes made by FHA.

FHA has made some changes in its requirements for financing a home through their program. Gone are the old VC sheets with the pages of hoops a property must jump through. Gone are the mandatory repairs for cracked window panes, torn screens, and worn flooring. Gone are the days of counting steps to determine if a handrail is required. 

MORTGAGEE LETTER 2005-ML-48 (effective as of January 1, 2006)  states: Minor property deficiencies, which generally result from deferred maintenance and normal wear and tear, that do not affect the safety of the occupants or the security and soundness of the property no longer require a repair to bring a property into compliance with FHA Minimum Property Requirements.

Examples of minor property conditions that no longer require automatic repair for existing properties include, but are not limited to:
* Missing handrails
* Cracked or damaged exit doors that are otherwise operable
* Cracked window glass
* Defective paint surfaces in homes constructed post 1978
* Minor plumbing leaks (such as leaky faucets)
* Defective floor finish or covering (worn through the finish, badly soiled
carpeting)
* Evidence of previous (non-active) Wood Destroying Insect/Organism
damage where there is no evidence of unrepaired structural damage
* Rotten or worn out counter tops
* Damaged plaster, sheetrock or other wall and ceiling materials in homes
constructed post- 1978
* Poor workmanship
* Trip hazards (cracked or partially heaving sidewalks, poorly installed
carpeting)
* Crawl space with debris and trash
* Lack of an all weather driveway surface

FHA still requires certain conditions to be met in order for a property to be eligible. Check back for Part II where I discuss what is still required.