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On Monday September 14th, 2015 there are BIG changes when it comes to FHA Appraisals. This is the date that HUD has decided to make Appraisers much more than they are qualified to be..Inspectors, Termite/Pest Control Experts, Title Attorneys, Structural Engineers, Appliance Experts, Roofing Experts, etc. What is going on? A One word change in the new HUD Handbook 4000.1 has made it a whole new ball game for Appraisers. That one word changed fromSHOULD to MUST! (Here is a link to the voluminous guidebook) HUD Handbook 4000.1 **DO NOT MISS IMPORTANT CHANGES AT END OF THIS NEWSLETTER** This one word has increased liability for the Appraiser tremendously and many are in an uproar about it. In fact it has been argued that the mere acceptance of FHA assignments violates USPAP's Competency Rule. This is because Appraisers are NOT inspectors, termite control experts, Appliance Experts, Title Experts, yet HUD wants us to act as though we have this kind of expertise. Once Appraisers sign that Appraisal Report they have made certain Certifications and have mislead the intended user and therefore they have violated USPAP. When things go wrong with the home and it goes into foreclosure, guess who is in the cross hairs of being sued...APPRAISERS!
Bottom line is this:
1. Expect Higher Costs for FHA Appraisals and a Shortage of Appraisers willing to do FHA Appraisals.
2. Expect LONGER turn times when you have a loan that is going FHA. Extend your Due Diligence periods by a few weeks to be safe.
** HUD Wants Appraisers to review all legal files and documents in the LENDER file before starting on the report. Plats, Warranty Deeds, C & R's for the Development, etc. Getting the Lenders to send all of that information to the Appraiser will take time.
3. Expect MANY more Appraisals conditioned for inspections when ANY doubt about the home exists. Why? Because those Appraiser that DO accept these assignments are not going to put their license on the line without some back up documentation in the file in the form of an inspection.
** HUD is REQUIRING Appraisers to inspect the Entire ATTIC and CRAWL SPACE.....Trust me, most will not do this or cannot physically do this so they MUST call for an inspection of these areas.
4. Expect Appraisers to ask you if an inspection was done. If so they will want to get a copy of that report as they will refer and defer to it in their Appraisal Reports.
5. If you think your listing has any chance of going FHA, I would suggest you get that home inspected BEFORE you list, get those items fixed and give a copy of that report to the Appraiser when they show up or leave it in the home for them. Use an ASHI Certified Inspector who is familiar with FHA inspections.
6. HUD wants Appraisers to test every single item that transfers with the property, including central vac, security systems, all appliances, washer & dryers, Dishwashers, etc. They want the appraiser to CERTIFY that there is reasonable future utility or life left for the various components in the home. If they are in doubt about that (and I would certainly think many would be), they will call for an inspection. *ALL OF THESE ITEMS MUST BE OPERATIONAL FOR THE APPRAISER BEFORE THEY ARRIVE.* The time when most FHA loans default is in the first few years when things start to fail and they have no money to fix them. If they were not aware of these issues up front that is a problem. That is why HUD wants Appraisers to act like inspectors to Certify "reasonable future utility". I feel this is for the Inspector NOT the Appraiser to determine. ** Some items you need to be aware of and many of these are New HUD requirements:
** The Three S's Still Apply: Safety, Security & Soundness of the Property must exist.
1. Crawl Spaces MUST be free of debris, vermin and any junk that obstructs any part of the crawl space (new)*** expect Appraisers to decline appraisals for homes on Crawl Spaces as many will not be crawling under the entire space!
2. Over head power lines or service lines must NOT pass over the home OR any structures including Pools, Sheds, etc. (new)
3. Homes built prior to 1978; if chipping paint is present not just on the home but other structures including sheds, barns, Fences, porches, decks, etc. the loose or chipping paint must be scraped off and areas re-painted. Stripping of paint is not required. (new for the other structures)
4. Home built AFTER 1978; any exterior surface that is exposed to water damage where bare wood is exposed must be painted, including porches, decks, sheds, etc. (new)
5. ANY evidence of dampness in or around the crawl will cause the Appraiser to call for an inspection. Vapor Barrier is NOT Required.
4. Shared Wells are OK for up to 4 living units, BUT the Appraiser must have the shared well agreement in hand which meets FHA requirements (22 requirements for shared wells! ) (new) 6.. Wells are Okay IF they do not require a water purification system.
7.. Community Water Systems are okay, Appraiser needs to note the name of Water Company in report. (new)
8. POOLS must appear to be operational if uncovered. They do NOT need to be cleaned of algae, etc. IF THE POOL is covered or winterized: "The Appraiser must complete report SUBJECT To the Assumption that the pool and equipment can be restored to full operational condition at normal cost" So if it is costly to fix, it may not qualify for FHA loan (new)
**Areas of intensive Agricultural use within 1 quarter mile
or 1,320 feet from the property may be ineligible for FHA for a property with a WELL. ** A dump, junkyard, landfill, factory, gas station or dry cleaning operation within 1 quarter mile of a home with a WELL may make property ineligible. Distances: Wells must be 100 feet away from septic drain fields. Septic tank must be 50 feet away from a well.
** If there is evidence of existing or prior Termite treatment
the Appraiser must mark the report that there is Evidence of Infestation and make the Appraisal Subject to inspection by a pest control/termite specialist. (New) ** Manufactured homes must have permanent foundations and certified by a engineer/foundation expert.
That is it for now. If any of this changes I will be sure to let you know. It will be a challenge for all to say the least. |
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