As of September 14th, the Federal Housing Administration’s (FHA) updated appraisal policies—found in its Single Family Housing Policy Handbook—officially took effect, and appraisers must now implement these changes when either performing appraisals or determining property eligibility for mortgages with FHA case numbers that have been assigned on or after September 14, 2015.
The handbook has been consolidated and redesigned to make it clearer and easier for appraisers and other industry participants to decipher, which was one of the FHA’s primary goals. It also now shows how all the different segments involved in the origination process interrelate with one another.
There are four appraiser-specific sections that are detailed within the handbook: The first relates to doing business with the FHA, and details how to get on the administration’s roster and fulfill its requirements; the second pertains to property requirements; the third outlines appraiser requirements; and the fourth and final section provides details on quality control – specifying what types of infractions could put an appraiser in jeopardy of being removed from the FHA’s panel.
In regards to the revised appraisal policies, the FHA pointed out the following key changes to Valuation Review that appraisers should keep note of:
- Properties with a Legal Non-Conforming Use: Requiring the appraiser to comment if improvements can be rebuilt by right.
- Accessory Dwelling Units: Emphasizing highest and best use to determine property type of classification.
- Attic and Crawl Space Inspection Requirements: Clarifying that FHA requires an inspection.
- General Acceptance Criteria, Property Eligibility, and Non-Residential Use of Property: Ensuring that mixed-use properties comply with zoning.
- Cost and Income Approach for Value: All the appropriate approaches must be utilized when applicable.
- Sales History of Comps: Requiring three years or more (instead of only one year), and requiring due diligence by the appraiser for analyzing prior sales of comparable properties.
- Energy-Efficient Building Components, Solar Systems, etc.: Requires the contributory value of building components that enhance efficiency or energy savings to be analyzed and reported. The FHA requires that the appraiser utilize all appropriate methods of valuation and does not restrict this to only matched pairs analysis.
- Photographs: Appraisers are required to provide more pictures and more information to underwriters to convey a better sense of the property.
For more information, check out the U.S. Department of Housing and Urban Development’s (HUD) Single Family Housing Policy Handbook webpage.