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HUD and FHA Guidelines for Valuation Analysis for Single Family and One to Four Unit Dwellings - Part 1 - Table of Contents - HUD, FHA, FNMA, GNMA, and FHLMC

Purpose of this Section: The following section contains appraisal guidelines for HUD and FHA appraisals. I've included this section to be used as a reference for you. These guidelines can help further clarify the appraisal topics discussed in this book. The text is written in a very formal and technical style of writing since it is used by HUD and FHA for their appraisal procedures. You don't need to try and memorize everything right away since it will seem overwhelming if you try to do that. Just take your time so you can learn at your own pace and refer back to this book as needed, like a reference manual.

These are the purposes of the HUD Updated Handbook, July 1999 Valuation Analysis for Single Family and One to Four Unit Dwellings information:

  • Provide guidance for appraisers on how to appraise existing, proposed and new construction of one- to four-family homes for which mortgages are to be insured by FHA.
  • Introduce appraisers to the environment of greater accountability associated with recent HUD reforms.
TABLE OF CONTENTS - Valuation Analysis for Single Family and One-to-Four Unit Dwellings

1 SELECTION OF APPRAISER 1-1

1-0 INTRODUCTION 1-1

1-1 FHA REGISTER 1-1

A. Appraiser Credentials 1-1

B. Register Application Process 1-1

C. Applicant Review 1-2

D. Designation to the FHA Register 1-2

1-2 LENDER SELECTION OF THE APPRAISER 1-3

A. Non-Discrimination Policy 1-3

B. Contractual Responsibility of Appraisers 1-3

C. Communication with Appraisers 1-4

D. Appraisal Fees 1-4

2 SITE ANALYSIS 2-1

2-0 INTRODUCTION 2-1

2-1 SITE REQUIREMENTS 2-1

A. Neighborhood Definition 2-1

B. Competitive Sites 2-1

C. Definitions - Construction Status 2-1

D. Economic Trends 2-2

E. Land Use Restrictions 2-2

1. Zoning 2-2

2. Protective Easement/Covenants 2-2

3. Inharmonious Land Uses 2-2

4. Natural Physical Features 2-3

5. Attractiveness of Neighborhood Buildings 2-3

6. Neighborhood Character 2-3

7. Character of Neighborhood Structures 2-3

F. Community Services 2-3

G. Transportation 2-3

H. Utilities and Services 2-4

I. Neighborhood Change Considerations 2-4

J. Marketability 2-4

K. Small Community Market Preferences 2-4

L. Outlying Sites and Isolated Sites 2-4

M. Study of Future Utility 2-4

N. Consideration of General Taxes and Special Assessments 2-4

1. Assessment 2-5

2. Special Assessment 2-5

2-2 SPECIAL NEIGHBORHOOD HAZARDS AND NUISANCES 2-5

A. Unacceptable Sites 2-6

B. Topography 2-6

C. Subsidence 2-6

D. Operating and Abandoned Oil or Gas Wells 2-7

1. Existing Construction 2-7

2. New or Proposed Construction 2-7

3. Abandoned Well 2-7

4. Special Case - Proposed, Existing or Abandoned Wells 2-8

E. Slush Pits 2-8

F. Heavy Traffic 2-8

G. Airport Noise and Hazards 2-9

H. Special Airport Hazards 2-9

1. New and Proposed Construction 2-9

2. Existing Construction 2-9

I. Proximity to High Pressure Gas 2-10

J. Overhead High-voltage Transmission Lines 2-10

K. Smoke, Fumes, Offensive Noises and Odors 2-10

L. Flood Hazard Areas 2-11

1. New and Proposed Construction 2-11

2. Existing Construction 2-12

3. Condominium 2-12

M. Stationary Storage Tanks 2-12

3 PROPERTY ANALYSIS 3-1

3-0 INTRODUCTION 3-1

3-1 APPRAISAL REQUIREMENTS 3-1

3-2 ANALYSIS OF SITE 3-1

A. Topography 3-2

B. Suitability of Soil 3-2

C. Off-Site Improvements 3-2

D. Easements, Restrictions or Encroachments 3-2

E. Encroachments 3-2

3-3 ANALYSIS OF PHYSICAL IMPROVEMENTS 3-3

A. Gross Living Area 3-3

B. Basement Bedrooms, Basement Apartments 3-3

C. Design 3-3

D. Conformity of Property to Neighborhood 3-4

3-4 REMAINING ECONOMIC LIFE OF BUILDING IMPROVEMENTS 3-5

A. Economic Life vs. Physical Life 3-5

B. Estimation of Remaining Economic Life 3-5

C. End of Useful Life of Building Improvements 3-6

3-5 CODE ENFORCEMENT FOR EXISTING PROPERTIES 3-6

3-6 GENERAL ACCEPTABILITY CRITERIA FOR FHA-INSURED MORTGAGES 3-6

A. General Acceptability Criteria 3-7

1. Subject Property 3-7

2. Hazards 3-7

3. Soil Contamination 3-8

a. Septic and Sewage 3-8

b. Other Soil Contaminants 3-9

c. Underground Storage Tanks 3-9

4. Drainage 3-9

5. Water Supply And Sewage Systems 3-9

a. Individual Water Supply and Sewage Disposal Systems 3-10

b. Unacceptable Conditions 3-10

6. Wood Structural Components: Termites 3-11

7. Streets 3-12

8. Defective Conditions 3-12

9. Ventilation 3-13

10. Foundations 3-13

11. Crawl Space 3-13

12. Roof 3-14

13. Mechanical Systems 3-14

14. Heating.. 3-14

15. Electricity 3-15

16. Other Health And Safety Deficiencies 3-15

17. Lead-Based Paint And Other Hazards 3-15

B. Other Criteria 3-16

1. Party Or Lot Line Wall 3-16

2. Service And Facilities 3-16

3. Non-Residential Use Design Limitations 3-17

4. Access Onto Property 3-17

5. Space Requirements 3-17

6. Bedroom Egress 3-17

7. Energy Efficiency 3-17

C. Conditions Not Requiring Repairs 3-17

D. REPAIR CONDITIONS FOR NEW/PROPOSED CONSTRUCTION 3-18

4 THE VALUATION PROCESS 4-1

4-0 INTRODUCTION 4-1

4-1 MARKET VALUE ESTIMATES 4-1

A. Definition of Market Value 4-1

B. Property Rights Appraised 4-2

C. Purpose 4-2

D. Intended Use of Appraisal/Function 4-3

E. Use of the Appraisal 4-3

F. Effective Date of Value 4-3

G. Scope 4-3

H. Special Limiting Conditions and Assumptions 4-3

4-2 HUD/FHA REQUIREMENTS 4-3

4-3 NEW AND PROPOSED CONSTRUCTION REQUIREMENTS 4-4

A. New Construction 4-4

B. Proposed Construction 4-4

4-4 UNIQUE PROPERTY APPRAISALS 4-5

4-5 COST APPROACH 4-5

A. Cost Approach Methodology 4-6

1. Land Value Estimate 4-6

2. Excess Land 4-6

3. Sales Comparison Approach For Land Value 4-6

4. Alsite 4-6

5. Extraction 4-7

B. Improvement Cost Estimate 4-7

C. Typical Replacement Cost 4-7

D. Unusual and Non-Typical Costs 4-7

E. Recommended Methodologies 4-7

F. Remaining Economic Life 4-8

4-6 SALES COMPARISON APPROACH 4-8

A. Data Requirements 4-8

1. Sales Data vs. Comparable Sale 4-8

2. Selection of Comparable Sales for Analysis 4-8

3. Excluded Sales Transactions 4-9

4. Current Offerings and Listings Analysis 4-9

5. Sales in Escrow 4-9

6. Distressed Sales 4-9

7. Resite Sales 4-9

8. Confirmation of Sales and Transaction Information 4-10

B. Adjustment Process 4-10

1. Support for Adjustments 4-12

2. Explanation of Adjustments 4-12

3. Reconciliation of Adjusted Sale Prices 4-12

4-7 INCOME APPROACH 4-12

A. Data Requirements 4-13

1. Confirmation Of Leases And Transaction Information 4-13

2. Adjustment Process 4-13

3. The Income Projection 4-13

B. Development of Rates 4-14

4-8 FINAL RECONCILIATION 4-14

4-9 RECONSIDERATION OF APPRAISED VALUE 4-14

5 REPORTING THE APPRAISAL 5-1

5-0 INTRODUCTION 5-1

5-1 REPORTING THE APPRAISAL 5-1

A. Part 1: Uniform Residential Appraisal Report (URAR) 5-1

1. Departure from HUD Requirements 5-1

2. Certification 5-1

3. Statement of Limiting Conditions 5-2

B. Part 2: Valuation Conditions Form 5-2

C. Part 1: Homebuyer Summary 5-4

5-2 ACCESS TO FORMS 5-4

5-3 RECORD KEEPING 5-4

A. Minimum Term for Record Keeping 5-4

B. Documentation File Requirements 5-4

C. Sample Documentation File 5-5

6 APPRAISAL AND APPRAISER MONITORING 6-1

6-0 INTRODUCTION 6-1

6-1 MONITORING AND STATISTICAL ANALYSIS 6-1

6-2 PERFORMANCE CATEGORIES 6-1

6-3 APPRAISAL REVIEW PROCESS 6-2

7 REGULATORY ENVIRONMENT, ENFORCEMENT AND SANCTIONS 7-1

7-0 INTRODUCTION 7-1

7-1 REGULATORY ENVIRONMENT 7-1

A. Financial Institutions Reform, Recovery, Enforcement Act of 1989 ("FIRREA") 7-1

B. Federal Financial Institution Regulatory Agencies 7-2

C. False, Fictitious or Fraudulent Claims (18 U.S.C. *87, 1001) - Criminal Penalties and Fines 7-2

D. False, Fictitious or Fraudulent Claims on HUD (18 U.S.C. 1010, 1012) - Criminal Penalties and Fines 7-3

E. Federal False Claims Act (31 U.S.C. *729) - Civil Fraud 7-3

F. 24 CFR Part 28 - Program Fraud Civil Remedies Act (PFCPA) 7-3

G. 24 CFR Part 30 - Civil Money Penalties 7-3

H. 24 CFR Part 24 - Administrative Sanctions 7-3

I. State Laws and Professional Organizations 7-3

1. State Certifications 7-3

2. Professional Organizations 7-4

7-2 ENFORCEMENT 7-4

A. State Certification Boards 7-4

B. Professional Organizations 7-4

7-3 APPLICABLE REMEDIES AND SANCTIONS 7-4

A. Notice of Appraisal Deficiencies and Remedial Education 7-5

B. Administrative Sanctions 7-5

C. Civil Sanctions 7-6

D. Criminal 7-6

E. Performance Violations and Level of Sanction 7-6

7-4 PERFORMANCE AND SANCTION MATRIX 7-7

8 MANUFACTURED HOMES 8-1

8-0 DEFINITION 8-1

8-1 PROPERTY STANDARDS FOR TITLE II MORTGAGE INSURANCE 8-1

8-2 PROPERTY DESCRIPTION 8-2

8-3 APPRAISER QUALIFICATIONS FOR MANUFACTURED HOMES CLASSIFIED AS PERSONAL PROPERTY 8-2

8-4 MANUFACTURED HOME LOT APPRAISALS 8-3

A. Manufactured Home Lot Sites 8-3

B. How to Perform a Manufactured Home Lot Appraisal 8-3

9 PLANNED UNIT DEVELOPMENTS AND CONDOMINIUMS 9-1

9-0 PLANNED UNIT DEVELOPMENT (PUD) 9-1

A. Approach To Value 9-1

B. Estimate of Market Price 9-1

9-1 CONDOMINIUMS 9-2

A. Definitions 9-2

B. Approach to Value 9-3

1. Sales Comparison Approach 9-3

APPENDIX A: VALUATION OF OTHER PROPERTIES A-1

A-1 REAL ESTATE OWNED (REO) A-1

A-2 APPRAISAL OF SINGLE FAMILY HOMES ON NATIVE AMERICAN LANDS A4

APPENDIX B: SPECIAL PROGRAMS B-1

B-1 203(K) REHABILITATION HOME MORTGAGE INSURANCE B-1

B-2 SECTION 255: HOME EQUITY CONVERSION MORTGAGES (REVERSE MORTGAGES) B-3

B-3 SECTION 223(E) B-3

B4 TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOAN PROGRAM B4

B-5 SOLAR ENERGY B-4

APPENDIX C: VALUATION REFERENCES C-1

C-1 RULES OF ROUNDING C-1

C-2 THE VALUATION PROCESS C-3

APPENDIX D: COMPREHENSIVE VALUATION PACKAGE PROTOCOL D-1

D-1 RESIDENTIAL APPRAISAL REQUIREMENTS D-1

D-2 VALUATION CONDITION REQUIREMENTS D-22

D-3 HOMEBUYER SUMMARY D-34

FORMS AND REPORTS REFERENCED IN HANDBOOK

  • HUD-92005: Description of Materials
  • HUD-92541: Builder's Certification
  • HUD-92544: Builder's Warranty
  • HUD-92563: Roster Appraiser Designation Application (to be updated)
  • HUD-92802: Application and Request for Manufactured Home Lot and/or Site Preparation
  • Homebuyer Summary and Valuation Conditions Form
  • Marshall and Swift Form 1007
  • Freddie Mac 704 Form: Second Property Value Analysis and Report
  • R.S. Means and Company Repair and Modeling Cost Data Book or the Home-Tech Remodeling and Renovation Cost Estimator
  • Use of Materials Bulletin No. 100, Subject: HUD Building Product Standards and Certification Program for Solar Water Heating Systems-August 15,1993
  • Marshall and Swift Cost Handbook - New and Proposed Construction
  • Marshall and Swift Guide to Construction Costs
  • Form FW 68: Land Appraisal Report
  • Uniform Standards of Professional Appraisal
  • Permanent Foundation Guide for Manufactured Housing
  • CABO Model Energy Code, 1992 Ed., Residential Buildings

FOREWORD

PURPOSES OF HANDBOOK: These are the purposes of this Handbook:

  • Provide guidance for appraisers on how to appraise existing, proposed and new construction of one- to four-family homes for which mortgages are to be insured by FHA.
  • Introduce appraisers to the environment of greater accountability associated with recent HUD reforms.

HOME BUYER PROTECTION PLAN: On June 1, 1998, HUD launched the Home Buyer Protection Plan. The Plan reforms the appraisal process to ensure that home buyers seeking FHA-insured mortgages receive accurate and complete appraisals of the homes they seek to purchase. If homebuyers do not receive adequate appraisals, they may have to make extensive repairs to make their homes habitable. As a result of the additional financial burden, they may default on their FHA-insured mortgages.

THE NEW HUD VALUATION CONDITIONS FORM: As part of the Home Buyer Protection Plan, HUD has revised the Valuation Conditions (VC) Form. This new form:

  • Requires submission of valuation condition information for all appraisals.
  • Transforms the former VC form into a series of "yes-or-no questions" based on readily observable physical conditions of the subject property.
  • Summarizes the information on the physical condition of the property for the Homebuyer.

THE PERFORMANCE MEASUREMENT FRAMEWORK: Another significant change reflected in this Handbook is the introduction of performance measures for appraisers. The performance measurement framework is designed to achieve improvements in the performance and professionalism of appraisers on the FHA Register. HUD will measure appraiser performance in the following five performance categories:

  • Appraisal process
  • Appraisal reporting
  • Valuation conditions
  • Maintaining state licensure
  • Responsiveness to field review

As part of this new framework, HUD will develop statistical indicators to identify poor appraisals and appraisers, and will inform appraisers of its enforcement efforts.

ENFORCEMENT AND SANCTIONS: In addition to providing clear sanctions, HUD has enhanced enforcement efforts by creating an Enforcement Center. The Enforcement Center will provide administrative support for the management of the sanction process.

RESOURCES: Questions and comments can be sent electronically to REAC's Internet website at . The Help Desk will be available be g on May 5,1999 Monday through Friday from 7:30 a.m. to 8:00 p.m. EST for questions. The telephone number is (888) 245-4860.

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