Appraising FHA 203k properties in Stockton or anywhere else for that matter
I appraised these 203k loan projects from 1992 - 2004 and since I was already a home inspector and a 203k consultant it was easy for me to understand the process. HUD actually called me one time to go to Alabama and provide instruction to the Appraisal Institute group there in Birmingham I think it was.
There are a good many appraisers out there that certainly know what they are doing but I get asked to speak at AI groups now and then and it is amazing some of the questions we get from the floor that tells us there are quite a few that don't have a clue. If they are asking the questions, however, they are taking the proper steps to move their education forward and that is a good thing.
This past week I have had several 203k appraisals that were way out there. Lets start with the right way to do it then we'll discuss the ones that were a little out there this past week.
1) The scope of work for the appraisal is simply to appraise the property subject to specific repairs being made.
2) Anything the appraiser would typically call out for repair that is listed on the consultant's report then will not be readdressed by the appraiser, why? Simply because they are being repaired and the appraisal is as though they were already repaired. Therefore they don't require any discussion in the report.
Now that we have set the stage let me tell you about what we are seeing in the market place that is causing nightmares for our buyers.
A) Appraiser lays out each and every deficiency that currently exists as if it were going to continue to exist and creates his own list of repairs ignoring the work write up and bid request. Yes, we can get this corrected but under the HVCC and through a management company the appraiser wants a new order so they can collect more money possibly, I don't know. The problem with that is that they made an error and they should be able to correct that error without having to go through any third party but can't. The second problem with that is that this appraiser clearly demonstrated they didn't know now to appraise "subject to" the repairs being completed and ignored the assignment. Therefore, this appraiser is in violation of USPAP and if the local OREA knew about this they would impose a fine and possible sanctions against that appraiser. The fines aren't cheap.
B) Second deal an appraiser who was asked to appraised for the "after repaired value" decided there are a lot more repairs that he would like to see fixed up without regard to the borrower's ability to qualify and has his own ideas on how much those repairs would or should cost. Not within his scope of work either. The appraiser's scope of work is to appraise the property with a specific set of repairs... YOU MAKE ADJUSTMENTS FOR THE THINGS THAT AREN'T BEING REPAIRED THAT YOU MIGHT THINK SHOULD BE REPAIRED, you don't create "conditions" to get them repaired. Just give us a value after these specific repairs are made, and don't be adding more repairs on top of it. This may cost the borrower the home and since the appraiser failed to complete the task within the scope of work could be liable for damages, and once the OREA hears about it they will want their fine too.
C) Last headache of the past week is that the "appraiser" thinks he is the "consultant" and is conditioning the appraisal for the forms that are the responsibility of the lender, not the appraiser. That would be like the appraiser conditioning to see the VOI and VOE as well. They have nothing to do with the "value of the property" but they have decided to become the "underwriter" and insure they underwriter has the complete report. Wow, too much and a possible fine from the OREA for a violation of USPAP. They received the narrative of the work that is to be done (work write up) and the bid specifications. That is all you need to determine the work that is to be completed. Then you appraise as if those items were complete. It is NOT your job to become the underwriter. It is not your job to see if the underwriting it complete, that is for the actual underwriter. YOU don't always get to see the entire consultants's report but you certainly can if they offer it, but that is the lender's option. As an example the "borrower's acknowledgement" is a for that the borrower has to sign that lays out the rules that they can't begin work till the loan closes, the pest clearance is required prior to the final draw being disbursed, the payments for work completed will be verified by inspection, and the checks will be made jointly to the borrower and the contractor and mailed to the borrower. He is to sign them over to the contractor upon receipt. THIS HAS NOTHING TO DO WITH THE APPRAISED VALUE FOLKS, it isn't necessary for the appraiser to see this form in the package prior to the appraisal, this is an underwriting issue that has nothing to do with the appraisal and could get the appraiser a hefty fine from the OREA. They are hungry right now and just laying in wait for you to make a mistake.
If your appraiser isn't sure how to do a 203k appraisal let them know we will be happy to put on a talk at their group or organization and see that they are brought up to date on the proper methods of appraising these tricky little devils... FREE