FHA Appraisal Changes
Coming January 2nd, 2012
Following Fannie and Freddie's lead taken this last Fall, (September 2011),
as of January 2, 2012, FHA (Federal Housing Administration) will be asking Appraisers to rate Condition of Property and Comparables from a pre-determined range of existing conditions.
These existing conditions will be rated from 1 to 6, (1 being new construction - to 6, being in need of total rehab and unacceptable condition).
The same will be true for ratings of Quality of Construction, and other identified factors. Utilization of these ratings will bring uniformity and objectivity to the Appraisal process when viewing FHA properties.
Collectively, all the above-mentioned changes now being demanded within Appraisals made by Freddie, Fannie, and FHA, will allow for a national data bank to be formulated, which will offer consistency of reporting practices by all Appraisers, something that (IMO) has long been needed, and overdue ... both from the Appraisal recipient's and professional Appraiser's view.
Below you will find the rating system to be utilized within all these Appraisals ... and the definition that corresponds with each rating:
C1: The improvements have been very recently constructed and have not previously been occupied. The entire structure and all components are new and the dwelling features no physical depreciation.*
*Note: Newly constructed improvements that feature recycled materials and/or components can be considered new dwellings provided that the dwelling is placed on a 100% new foundation and the recycled materials and the recycled components have been rehabilitated/re-manufactured into like-new condition. Recently constructed improvements that have not been previously occupied are not considered “new” if they have any significant physical depreciation (i.e., newly constructed dwellings that have been vacant for an extended period of time without adequate maintenance or upkeep).
C2: The improvements feature no deferred maintenance, little or no physical depreciation, and require no repairs. Virtually all building components are new or have been recently repaired, refinished, or rehabilitated. All outdated components and finishes have been updated and/or replaced with components that meet current standards. Dwellings in this category either are almost new or have been recently completely renovated and are similar in condition to new construction.
C3: The improvements are well maintained and feature limited physical depreciation due to normal wear and tear. Some components, but not every major building component, may be updated or recently rehabilitated. The structure has been well maintained.
C4: The improvements feature some minor deferred maintenance and physical deterioration due to normal wear and tear. The dwelling has been adequately maintained and requires only minimal repairs to building components/mechanical systems and cosmetic repairs. All major building components have been adequately maintained and are functionally adequate.
C5: The improvements feature obvious deferred maintenance and are in need of some significant repairs. Some building components need repairs, rehabilitation, or updating. The functional utility and overall livability is somewhat diminished due to condition, but the dwelling remains useable and functional as a residence.
C6: The improvements have substantial damage or deferred maintenance with deficiencies or defects that are severe enough to affect the safety, soundness, or structural integrity of the improvements. The improvements are in need of substantial repairs and rehabilitation, including many or most major components.
* Work with a mortgage lender with a complete and thorough understanding and knowledge of the appraisal process. Contact me, Gene Mundt at Chicago Bancorp, today. With over 20 years of experience and expertise as an IL licensed real estate appraiser, I can assist you, or your clients, in navigating today's challenging appraising and mortgage issues and processing.
I look forward to working with you throughout Chicagoland via any of the following methods:
(Joliet and Chicago offices also)
Direct #: 815.277.4036 Cell/Text: 708.921.6331
Fax: 312.624.6738 Skype: 630.219.1316
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Gene Mundt
Regional Manager - Mortgage Lender
Personal NMLS #216987
NMLS # 175656
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14 Comments on FHA Appraisal Changes Coming January 2nd, 2012
I will have to study these much more. Have not done much for FHA in a while.
Gene, Thanks for the info. We're doing more FHA's in our area now, so it's good to stay familiar with their guidelines.
Thanks so much for the post, Gene! Let's hope these changes improve the quality of FHA appraisals!
Gene, these new rules are beginning the create challenging issues in the transaction especially if the inspection has been completed by the buyer and all issues were resolved by both parties. At the same time, we are hearing from appraisers that in some instances these new requirements are our of their scope of expertise and hence scope of work and license. What are you seeing?
Vern: Hope the post proves educational and beneficial to you. Let me know if I can answer any questions or be of assistance to you. Thanks for commenting ...
Joyce: I think FHA has seen an uptick in many places. Glad you found the info beneficial. Staying on top of trends and new regulations is so important in our industry these days!
Ed: You're welcome! And I definitely agree with you. Improvements are needed ... and hopefully these more clearly defined classifications will help accomplish those improvements.
Happy Holidays!
Gene
Thanks for keeping us up to date on changes. I don't do many FHA loans but will store this in my data bank for next year.
Gene -- thank you for doing the homework on this and making this information available to all of us in a clear manner. (I think I saw something about this a while back, but it was no where near as clearly set forth.)
Gene ...some very useful information here .. unfortuntatley I still see this as a matter of opininon with a lot of option for interperetations of condition by the appraiser
Emily: Appraisers are saying that they shouldn't be asked to make these rating judgments?? I'd say this is a little over-reactive on the appraisers part. I have not heard that here locally. And JMO, but if they are not willing to make these determinations they probably shouldn't be in the business. This isn't rocket science. These judgments shouldn't be beyond their expertise. Again, JMO ... but as a former appraiser, I believe this ...
Keep me posted on what you hear and see with the changes coming after the first of the year. Perhaps with some time they will become more comfortable with doing this?
Thanks, Emily ...
Gene
Corinne: You never know what the future holds, so being aware is always a good proactive move. Hope the New Year proves to be very busy and prosperous for us all ...
Steven: Glad this proved helpful. I'm glad that you and other mortgage professionals are here on the Rain. We can truly benefit one-another and help educate each other too. Happy Holidays to you ...
Appraisals are an opinion, no doubt. But hopefully these classifications are pretty clearly defined and cut down on the more loosely-interpreted judgement calls. Time will tell ...
Gene
Gene - I'm actually glad that FHA is going the way of UAD. Back in September, I had blogged about my concerns with UAD for conventional loans and I have to say that I haven't had any major issues with UAD (other than the expected ones).
That's not to say that my conventional borrowers and I haven't received some low appraisals since September (we have). But in those cases they were expected because I made sure going in that my borrowers understood that I felt there were going to be value issues and that their purchase offer was too high - and I was right! While I am no appraiser, I can most certainly run comps and make an educated assessment on anticipated appraised value - and get pretty darn close too!
However, I have been a little surprised (in a good way) with the way that the conditions were reported on the conventional appraisals I have seen recently. It still may be a little too soon to say this but I think that UAD could possible clear up a lot of those issues where incompetent appraisers are appraising rehabbed, move-in ready, equity sale properties to run-down, dilapidated, dumpy, REOs with little to no adjustments in value. JMHO
Donne: Time will tell as to how many ills this will cure. But I remain hopeful that, if implemented well and correctly, many issues should disappear. It should not be beyond the scope and expertise of appraisers to master this. And I do not doubt for one minute that you have a full-grasp on the property values in your area. It's the intelligent thing to do ... and also makes the lending process go much more smoothly for ourselves and our clients. Who doesn't want that?? Who wouldn't take the time to obtain some property info and knowledge? We have the ability to make our own lives easier by doing this. I'm keeping my ear to the ground on this issue. Will be very interested to see how impressions of it develop.
Gene
This should be interesting. I wonder if making these judgement call will be part of continuing ed for appraisers.
No doubt it will be covered in those sessions, Mona. And rightfully so. Making sure that appraisers know and understand fully the definitions of each classification will be imperitive. And as I've said prior, only time will tell if this new change meets the test ...
Happy Holidays!
Gene