Valuation Analysis for Home Mortgage Insurance. for Single Family One- to Four- Unit Dwellings

Transcription

1 U. S. Department f Husing and Urban Develpment HANDBOOK Valuatin Analysis fr Hme Mrtgage Insurance fr Single Family One- t Fur- Unit Dwellings July 1, 1999

2 TABLE OF CONTENTS 1 SELECTION OF APPRAISER INTRODUCTION FHA REGISTER 1-1 A. Appraiser Credentials 1-1 B. Register Applicatin Prcess 1-1 C. Applicant Review 1-2 D. Designatin t the FHA Register LENDER SELECTION OF THE APPRAISER 1-3 A. Nn-Discriminatin Plicy 1-3 B. Cntractual Respnsibility f Appraisers 1-3 C. Cmmunicatin with Appraisers 1-4 D. Appraisal Fees SITE ANALYSIS INTRODUCTION SITE REQUIREMENTS 2-1 A. Neighbrhd Definitin 2-1 B. Cmpetitive Sites 2-1 C. Definitins - Cnstructin Status 2-1 D. Ecnmic Trends 2-2 E. Land Use Restrictins Zning Prtective Easement/Cvenants Inharmnius Land Uses Natural Physical Features Attractiveness f Neighbrhd Buildings Neighbrhd Character Character f Neighbrhd Structures 2-3 F. Cmmunity Services 2-3 G. Transprtatin 2-3 H. Utilities and Services 2-4 I. Neighbrhd Change Cnsideratins 2-4 J. Marketability 2-4 K. Small Cmmunity Market Preferences 2-4 L. Outlying Sites and Islated Sites 2-4 M. Study f Future Utility 2-4 N. Cnsideratin f General Taxes and Special Assessments Assessment Special Assessment SPECIAL NEIGHBORHOOD HAZARDS AND NUISANCES 2-5 A. Unacceptable Sites 2-6 B. Tpgraphy 2-6 C. Subsidence 2-6 i

3 D. Operating and Abandned Oil r Gas Wells Existing Cnstructin New r Prpsed Cnstructin Abandned Well Special Case - Prpsed, Existing r Abandned Wells 2-8 E. Slush Pits 2-8 F. Heavy Traffic 2-8 G. Airprt Nise and Hazards 2-9 H. Special Airprt Hazards New and Prpsed Cnstructin Existing Cnstructin 2-9 I. Prximity t High Pressure Gas 2-10 J. Overhead High-vltage Transmissin Lines 2-10 K. Smke, Fumes, Offensive Nises and Odrs 2-10 L. Fld Hazard Areas New and Prpsed Cnstructin Existing Cnstructin Cndminium 2-12 M. Statinary Strage Tanks PROPERTY ANALYSIS INTRODUCTION APPRAISAL REQUIREMENTS ANALYSIS OF SITE 3-1 A. Tpgraphy 3-2 B. Suitability f Sil 3-2 C. Off-Site Imprvements 3-2 D. Easements, Restrictins r Encrachments 3-2 E. Encrachments ANALYSIS OF PHYSICAL IMPROVEMENTS 3-3 A. Grss Living Area 3-3 B. Basement Bedrms, Basement Apartments 3-3 C. Design 3-3 D. Cnfrmity f Prperty t Neighbrhd REMAINING ECONOMIC LIFE OF BUILDING IMPROVEMENTS 3-5 A. Ecnmic Life vs. Physical Life 3-5 B. Estimatin f Remaining Ecnmic Life 3-5 C. End f Useful Life f Building Imprvements CODE ENFORCEMENT FOR EXISTING PROPERTIES GENERAL ACCEPTABILITY CRITERIA FOR FHA-INSURED MORTGAGES 3-6 A. General Acceptability Criteria Subject Prperty Hazards Sil Cntaminatin 3-8 a. Septic and Sewage 3-8 b. Other Sil Cntaminants 3-9 c. Undergrund Strage Tanks Drainage 3-9 ii

4 5. Water Supply And Sewage Systems 3-9 a. Individual Water Supply and Sewage Dispsal Systems 3-10 b. Unacceptable Cnditins Wd Structural Cmpnents: Termites Streets Defective Cnditins Ventilatin Fundatins Crawl Space Rf Mechanical Systems Heating Electricity Other Health And Safety Deficiencies Lead-Based Paint And Other Hazards 3-15 B. Other Criteria Party Or Lt Line Wall Service And Facilities Nn-Residential Use Design Limitatins Access Ont Prperty Space Requirements Bedrm Egress Energy Efficiency 3-17 C. Cnditins Nt Requiring Repairs 3-17 D. REPAIR CONDITIONS FOR NEW/PROPOSED CONSTRUCTION THE VALUATION PROCESS INTRODUCTION MARKET VALUE ESTIMATES 4-1 A. Definitin f Market Value 4-1 B. Prperty Rights Appraised 4-2 C. Purpse 4-2 D. Intended Use f Appraisal/Functin 4-3 E. Use f the Appraisal 4-3 F. Effective Date f Value 4-3 G. Scpe 4-3 H. Special Limiting Cnditins and Assumptins HUD/FHA REQUIREMENTS NEW AND PROPOSED CONSTRUCTION REQUIREMENTS 4-4 A. New Cnstructin 4-4 B. Prpsed Cnstructin UNIQUE PROPERTY APPRAISALS COST APPROACH 4-5 A. Cst Apprach Methdlgy Land Value Estimate Excess Land 4-6 iii

5 3. Sales Cmparisn Apprach Fr Land Value Alsite Extractin 4-7 B. Imprvement Cst Estimate 4-7 C. Typical Replacement Cst 4-7 D. Unusual and Nn-Typical Csts 4-7 E. Recmmended Methdlgies 4-7 F. Remaining Ecnmic Life SALES COMPARISON APPROACH 4-8 A. Data Requirements Sales Data vs. Cmparable Sale Selectin f Cmparable Sales fr Analysis Excluded Sales Transactins Current Offerings and Listings Analysis Sales in Escrw Distressed Sales Resite Sales Cnfirmatin f Sales and Transactin Infrmatin 4-10 B. Adjustment Prcess Supprt fr Adjustments Explanatin f Adjustments Recnciliatin f Adjusted Sale Prices INCOME APPROACH 4-12 A. Data Requirements Cnfirmatin Of Leases And Transactin Infrmatin Adjustment Prcess The Incme Prjectin 4-13 B. Develpment f Rates FINAL RECONCILIATION RECONSIDERATION OF APPRAISED VALUE REPORTING THE APPRAISAL INTRODUCTION REPORTING THE APPRAISAL 5-1 A. Part 1: Unifrm Residential Appraisal Reprt (URAR) Departure frm HUD Requirements Certificatin Statement f Limiting Cnditins 5-2 B. Part 2: Valuatin Cnditins Frm 5-2 C. Part 1: Hmebuyer Summary ACCESS TO FORMS RECORD KEEPING 5-4 A. Minimum Term fr Recrd Keeping 5-4 B. Dcumentatin File Requirements 5-4 C. Sample Dcumentatin File 5-5 iv

6 6 APPRAISAL AND APPRAISER MONITORING INTRODUCTION MONITORING AND STATISTICAL ANALYSIS PERFORMANCE CATEGORIES APPRAISAL REVIEW PROCESS REGULATORY ENVIRONMENT, ENFORCEMENT AND SANCTIONS INTRODUCTION REGULATORY ENVIRONMENT 7-1 A. Financial Institutins Refrm, Recvery, Enfrcement Act f 1989 ("FIRREA") 7-1 B. Federal Financial Institutin Regulatry Agencies 7-2 C. False, Fictitius r Fraudulent Claims (18 U.S.C. 287, 1001) - Criminal Penalties and Fines 7-2 D. False, Fictitius r Fraudulent Claims n HUD(18 U.S.C. 1010, 1012) - Criminal Penalties and Fines 7-3 E. Federal False Claims Act (31 U.S.C. 3729) - Civil Fraud 7-3 F. 24 CFR Part 28 - Prgram Fraud Civil Remedies Act (PFCPA) 7-3 G. 24 CFR Part 30 - Civil Mney Penalties 7-3 H. 24 CFR Part 24 - Administrative Sanctins 7-3 I. State Laws and Prfessinal Organizatins State Certificatins Prfessinal Organizatins ENFORCEMENT 7-4 A. State Certificatin Bards 7-4 B. Prfessinal Organizatins APPLICABLE REMEDIES AND SANCTIONS 7-4 A. Ntice f Appraisal Deficiencies and Remedial Educatin 7-5 B. Administrative Sanctins 7-5 C. Civil Sanctins 7-6 D. Criminal 7-6 E. Perfrmance Vilatins and Level f Sanctin PERFORMANCE AND SANCTION MATRIX MANUFACTURED HOMES DEFINITION PROPERTY STANDARDS FOR TITLE II MORTGAGE INSURANCE PROPERTY DESCRIPTION 8-2 v

7 8-3 APPRAISER QUALIFICATIONS FOR MANUFACTURED HOMES CLASSIFIED AS PERSONAL PROPERTY MANUFACTURED HOME LOT APPRAISALS 8-3 A. Manufactured Hme Lt Sites 8-3 B. Hw t Perfrm a Manufactured Hme Lt Appraisal PLANNED UNIT DEVELOPMENTS AND CONDOMINIUMS PLANNED UNIT DEVELOPMENT (PUD) 9-1 A. Apprach T Value 9-1 B. Estimate f Market Price CONDOMINIUMS 9-2 A. Definitins 9-2 B. Apprach t Value Sales Cmparisn Apprach 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 A-4 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 B-4 TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOAN PROGRAM B-4 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 vi

8 FORMS AND REPORTS REFERENCED IN HANDBOOK HUD-92005: HUD-92541: HUD-92544: HUD-92563: HUD-92802: Preparatin Descriptin f Materials Builder's Certificatin Builder's Warranty Rster Appraiser Designatin Applicatin (t be updated) Applicatin and Request fr Manufactured Hme Lt and/r Site Hmebuyer Summary and Valuatin Cnditins Frm Marshall and Swift Frm 1007 Freddie Mac 704 Frm: Secnd Prperty Value Analysis and Reprt R.S. Means & Cmpany Repair and Mdeling Cst Data Bk r the Hme-Tech Remdeling and Renvatin Cst Estimatr Use f Materials Bulletin N. 100, Subject: HUD Building Prduct Standards & Certificatin Prgram fr Slar Water Heating Systems-August 15,1993 Marshall & Swift Cst Handbk - New & Prpsed Cnstructin Marshall & Swift Guide t Cnstructin Csts Frm FW 68: Land Appraisal Reprt Unifrm Standards f Prfessinal Appraisal Permanent Fundatin Guide fr Manufactured Husing CABO Mdel Energy Cde, 1992 Ed., Residential Buildings vii

9 FOREWORD PURPOSES OF HANDBOOK These are the purpses f this Handbk: Prvide guidance fr appraisers n hw t appraise existing, prpsed and new cnstructin f ne- t fur-family hmes fr which mrtgages are t be insured by FHA. Intrduce appraisers t the envirnment f greater accuntability assciated with recent HUD refrms. HOME BUYER The PROTECNON PLAN On June 1, 1998, HUD launched the HmeBuyer Prtectin Plan. Plan refrms the appraisal prcess t ensure that hme buyers seeking FHA-insured mrtgages receive accurate and cmplete appraisals f the hmes they seek t purchase. If hmebuyers d nt receive adequate appraisals, they may have t make extensive repairs t make their hmes habitable. As a result f the additinal financial burden, they may default n their FHA-insured mrtgages. THE NEW HUD As part f the HmeBuyer Prtectin Plan, HUD has revised the VALUATION Valuatin Cnditins (VC) Frm. This new frm: CONDITIONS FORM Requires submissin f valuatin cnditin infrmatin fr all appraisals Transfrms the frmer VC frm int a series f "yes-r-n questins" based n readily bservable physical cnditins f the subject prperty Summarizes the infrmatin n the physical cnditin f the prperty fr the Hmebuyer THE PERFORMANCE MEASUREMENT FRAMEWORK n the FHA Anther significant change reflected in this Handbk is the intrductin f perfrmance measures fr appraisers. The perfrmance measurement framewrk is designed t achieve imprvements in the perfrmance and prfessinalism f appraisers Register. HUD will measure appraiser perfrmance in the fllwing five perfrmance categries: Appraisal prcess Appraisal reprting Valuatin cnditins Maintaining state licensure Respnsiveness t field review viii

10 As part f this new framewrk, HUD will develp statistical indicatrs t identify pr appraisals and appraisers, and will infrm appraisers f its enfrcement effrts. ENFORCEMENT In additin t prviding clear sanctins, HUD has enhanced AND SANCTIONS enfrcement effrts by creating an Enfrcement Center. The Enfrcement Center will prvide administrative supprt fr the management f the sanctin prcess. RESOURCES Questins and cmments can be sent electrnically t REAC's Internet website at reacne@hud.gv The Help Desk will be available be g n May 5,1999 Mnday thrugh Friday frm 7:30 a.m. t 8:00 p.m. EST fr questins. The telephne number is (888) ix

11 1 SELECTION OF APPRAISER 1-0 INTRODUCTION The success f the FHA insurance prgram and HUD's ability t prtect its financial interest begins with selecting qualified and knwledgeable appraisers. This chapter presents the minimum requirements that appraisers must meet t be placed n the FHA Register. 1-1 FHA REGISTER The FHA Register lists appraisers wh are eligible t perfrm FHA single-family appraisals. T cnduct an appraisal fr FHA insurance endrsement, the appraiser must be n the FHA Register. Appraiser Appraiser HUD Appraiser achieves applies reviews placed n necessary t HUD applicatin FHA Register credentials A. APPRAISER CREDENTIALS T be eligible fr placement n the FHA Register, all appraisers must be state-licensed r statecertified and must nt be listed n any f these: GSA's Suspensin and Debarment List (the gvernment-wide list f parties excluded frm federal prcurement r nn-prcurement prgrams) HUD's Limited Denial f Participatin List HUD's Credit Alert Interactive Vice Respnse System (CAIVRS) T be eligible t perfrm appraisals fr FHA, the appraiser must als pass a HUD//FHA test n appraisal methds and reprting, which fcuses n applied knwledge f the new Handbk A unifrm natinal examinatin will be available June 1, The examinatin cntains fifty questins in a multiple-chice frmat. The test will be administered by a natinal prvider and the cst paid by the appraiser. Appraisers currently n the FHA Register will be grandfathered until January 30, B. REGISTER APPLICATION PROCESS The applicatin prcess is the first screening f the appraiser's qualificatins t perfrm HUD/FHA appraisals. T apply, appraisers must submit the fllwing t FHA: Updated frm HUD "Register Appraiser Designatin Applicatin" A cpy f a current valid appraisal license and/r certificatin verificatin that the appraiser has passed the FHA Examinatin HUD will review this infrmatin t determine the appraiser's eligibility fr the FHA Register. 1-1

12 C. APPLICANT REVIEW T verify that the appraiser is eligible t perfrm HUD/FHA appraisals, REAC perfrms a detailed review f the appraiser's prfessinal qualificatins and checks fr any negative infrmatin. The review des the fllwing: verifies that the appraiser is state-licensed r state-certified under the Appraisal Qualificatins Bard (AQB) criteria verifies that the appraiser has passed the FHA Appraisals Methds and Prcedures test pre-screens the appraiser's scial security number in the HUD/FHA Credit Alert Interactive Vice Respnse System (CAIVRS) reviews HUD recrds t ensure that the appraiser has n pending suspensins, disqualificatins r debarments verifies with the appraiser's signature that there are n actins r pending judgments against the appraiser fr waste, fraud, abuse r breach f prfessinal ethics r standards reviews the previus perid's perfrmance, if applicable. D. DESIGNATION TO THE FHA REGISTER When the review f the applicatin is cmplete, the appraiser is designated t the FHA Register. New appraisers recently added t the FHA Register may be mnitred and reviewed mre frequently t ensure that their perfrmance is cnsistent with HUD/ FHA guidelines and t mnitr training needs. Because the initial applicatin t the FHA Register will ccur after the appraiser has becme state-licensed r state-certified, the first term will cincide with the remaining perid f state licensing fr the hme state. After this initial perid, the FHA Register perid will be cnsistent with the hme state license perid. Each perid, every appraiser must re-apply t the FHA Register, cncurrent with the appraiser's applicatin fr state licensing and/r re-certificatin. HUD reviews the appraiser's perfrmance and cmpliance with new testing requirements and verifies that the appraiser is state-certified r state-licensed. Fr mre infrmatin n the review prcess, see Chapter 6 f this Handbk. 1-2

13 1-2 LENDER SELECTION OF THE APPRAISER Lender Lender Lender Appraiser Lender selects assigns transmits perfrms reviews appraiser appraiser case #, if appraisal appraisal available When the lender selects an appraiser frm the FHA Register, the FHA Cnnectin prcesses a case number fr the lender. The lender may assign the appraiser befre receiving the case number, but the case may nt be submitted fr endrsement withut the case number. The case number must be placed n all cpies f the URAR as well as the VC frm and summary. The mrtgagee will give the appraiser: the prperty address type f cnstructin number f units ther infrmatin necessary fr the assignment If the prperty is a cndminium r a Planned Unit Develpment (PUD), the lender will verify that it is HUD-apprved befre rdering a case number r having an appraisal perfrmed. The lender will give the appraiser the prject name and ID number and all available prperty infrmatin. If it is prpsed cnstructin fr a PUD r Cndminium, it must be FHA-apprved befre rdering a case number. The name f the Cndminium r PUD must be given. A. NON-DISCRIMINATION POLICY The Department's regulatins n chsing appraisers state that there shall be n discriminatin n the basis f race, clr, religin, natinal rigin, sex, age r disability. HUD expects lenders t cmply with anti-discriminatin requirements and affirmatively select female and minrity appraisers fr a fair share f appraisals cmmensurate with their representatin n the FHA Register. HUD will mnitr lenders' chice f appraisers by their sex and race. B. CONTRACTUAL RESPONSIBILITY OF APPRAISERS The appraiser is hired by the lender, and therefre has a cntractual respnsibility t the lender. Hwever, the appraiser prvides services fr HUD prgrams, and therefre, has an bligatin t perfrm these services cmmensurate with the standards and requirements f HUD. This dual respnsibility f the appraiser is recgnized in the review and reprting requirements f HUD. The lender and the appraiser must meet their respective bligatins as prescribed by HUD/FHA. Therefre, the intended user f the appraisal reprt is als HUD. These cntractual bligatins t the lender and HUD/FHA are in additin t the appraiser's legal bligatins t his r her credentialing state. 1-3

14 C. COMMUNICATION WITH APPRAISERS (1-2) HUD/FHA mrtgage insurance is initiated when a lender selects an appraiser frm the FHA Register. Once the appraiser agrees t perfrm the appraisal, the appraiser is in a cntractual relatinship with the lender. The appraiser will send the cmpleted appraisal directly t the lender. HUD advises the appraiser t discuss the appraisal nly with the underwriter. N ther individual shuld cntact the appraiser befre the appraisal has been cmpleted. Real estate brkers and agents shuld cnsider the lender their sle surce f infrmatin n the appraisal and all matters related t the appraisal. D. APPRAISAL FEES The appraiser and the lender will negtiate the price and due date. HUD des nt establish fees r due dates. The fee is paid fr market value estimate based n guidelines cnsistent with HUD plicy and prcedure established in this Handbk. The fee is nt based n a requested minimum valuatin, a specific valuatin r the apprval f a lan. Lenders may charge the brrwer nly what is custmary and reasnable in the area t btain an appraisal. Appraisal management firms may charge the mrtgagr a fee fr the appraisal that may encmpass fees fr services perfrmed by the firm as well as fees fr the appraisal itself. Hwever, the ttal f these fees is limited t the custmary and reasnable fee fr an appraisal in the market area where the appraisal is perfrmed. Such arrangements must cmply with all aspects f the Real Estate Settlement Prcedures Act (RESPA) and its implementing regulatins, including restrictins against: kickbacks and referral fees charges fr settlement services that were nt actually perfrmed payments in affiliated business arrangements ther than return n wnership 1-4

15 2 SITE ANALYSIS 2-0 INTRODUCTION This Chapter addresses the site requirements fr FHA-insured mrtgages. Befre the valuatin prcess can begin, subject prperties must meet specific site requirements. The appraisal prcess is the lender's tl fr determining if a prperty meets the minimum requirements and eligibility standards fr a FHAinsured mrtgage. In additin, these standards prvide a cntext fr the appraiser in perfrming the physical inspectin f the prperty. 2-1 SITE REQUIREMENTS The purpse f site analysis is t identify the varius site characteristics that affect the marketability and the value f the subject prperty. Site analysis requires the fllwing: determining the desirability and utility f the site determining the degree and extent t which the site, because f external influences, shares in the market fr cmparable and cmpetitive sites in the cmmunity frecasting the likely changes at the site because f justifiable future trends appraising the current situatin and knwledge f the varius trends that culd affect the valuatin f the real prperty The principal f change is fundamental t appraising real estate and t prperly analyzing a site. Value is created and mdified by ecnmic, scial and gvernmental changes that ccur utside the prperty. Evaluate the directin f these trends and determine their effect, if any, n the current value f the subject prperty. A. NEIGHBORHOOD DEFINITION The appraiser must dearly define the bundaries - nrth, suth, east and west - f the subject neighbrhd. By defining the neighbrhd, the appraiser can extract pertinent infrmatin n which t base valuatin cnclusins. B. COMPETITIVE SITES Sites are cmpetitive when they are imprved with, r apprpriate fr, residential prperties that are similar in accmmdatins and sales price r rental range fr similar residents r prspective ccupants. Cmpare features f the subject site with the same features f cmpetitive sites within the cmmunity. An acceptable site must be related t the needs f the prspective ccupants and t the alternatives available t them in ther cmpetitive sites. C. DEFINITIONS - CONSTRUCTION STATUS Prpsed - N cncrete r permanent material has been placed. Digging f fting and placement f re-bar is nt cnsidered permanent. Under Cnstructin - Frm the first placement f cncrete (permanent material) t 100% cmpletin. Finalized and ready t ccupy. 2-1

16 (2-1) Existing - 100% cmplete and has ccupancy permit. Existing less than ne year - Appraisal perfrmed less than ne year since receipt f final ccupancy permit issued. Fr mdel hmes, age begins with issuing f permit t use as a mdel. Fr any hme less than 2 years ld, list mnth and year cmpleted in the age bx n the URAR. D. ECONOMIC TRENDS The appraiser must give cnsideratin t, and include in the value analysis, the ecnmic trends f a neighbrhd and the general area, including: price and wage levels (the purchasing pwer f cmmunity ccupants) emplyment characteristics the current supply and demand fr residential dwellings, including prjects under cnstructin taxatin levels building csts ppulatin changes activity f real estate sales market and mrtgage interest rates E. LAND USE RESTRICTIONS Site analysis determines the effects f actual and ptential neighbrhd land use n the subject site. The fllwing factrs frm patterns fr present and future land uses: 1. Zning The appraiser shuld cnsider the effect n the value f apprpriate and well-drawn zning rdinances. Land-use cntrls that receive public apprval and are strictly enfrced prtect residential sites frm adverse influences that diminish the desirability f sites. This must be nted n the URAR, and its effect must be quantified in the valuatin analysis. 2. Prtective Easement/Cvenants Prperly drawn prtective cvenants have prven mre effective than zning regulatins in prviding prtectin frm adverse envirnmental influences. When cmbined with prper zning rdinances, these cvenants prvide the maximum legal prtectin t ensure that a develped residential area will maintain desirable characteristics r that a prpsed r partially built-up neighbrhd will develp in a desirable manner. Prtective easements and cvenants shuld be superir t any mrtgage and shuld be binding t all parties and all persns claiming under them. These must be nted n the URAR and its effect must be quantified in the Valuatin Analysis. 2-2

17 (2-1) 3. Inharmnius Land Uses The appraiser must identify all inharmnius land uses in a neighbrhd that affect value. Clearly define the current and lng-term effect that inharmnius uses will have n the market value and the ecnmic life f the subject prperty. If inharmnius land use represents a serius detriment t either the health r safety f the ccupants r t the ecnmic security f the prperty, clearly nte this n the VC and URAR. Recmmend that the prperty be rejected by the Lender. 4. Natural Physical Features The appraiser must cnsider favrable and underlying tpgraphy and site features, including pleasing views, wd lts, brad vistas and climatic advantages. Streets that are laid ut with prper regard t drainage, land cnturs and traffic flw shw gd design and increase the desirability f the neighbrhd. This must be nted n the URAR and its effect must be quantified in the valuatin analysis. 5. Attractiveness f Neighbrhd Buildings The verall appeal f a neighbrhd is strengthened if the buildings in a neighbrhd harmnize with each ther and their physical surrundings. A pleasing variety that results in harmniusly blended prperties is desirable but nt mandatry. The age f the structure is nt in itself an imprtant cnsideratin; hwever, the maintenance f the structure ver time has an imprtant impact. Cnsider the amunt f rehabilitatin that has taken place r is taking place in a neighbrhd. This must be nted n the URAR and its effect must be quantified in the valuatin analysis. 6. Neighbrhd Character Mbility and ecnmic grwth can alter neighbrhd patterns. Shpping, recreatin, places f wrship, schls and places f emplyment shuld be easily accessible. This must be nted n the URAR and its effect must be quantified in the valuatin analysis. 7. Character f Neighbrhd Structures The appraiser must carefully analyze the age, quality, bslescence and apprpriateness f typical prperties in a neighbrhd. Take int accunt the attitude f the user grup as well as the alternative chices available t the specific market under cnsideratin. This must be nted n the URAR and its effect must be quantified in the valuatin analysis. F. COMMUNITY SERVICES Cmmunity services include cmmercial, civic and scial centers. Fr a neighbrhd t remain stable and retain a high degree f desirability, it shuld be adequately served by elementary and secndary schls, neighbrhd shpping centers, churches, playgrunds, parks, 2-3

18 (2-1) cmmunity halls, libraries, hspitals and theaters. A lack f services in the cmmunity shuld be nted and quantified in the valuatin analysis. The appraiser must nte a change in these services and quantify the effect n value. G. TRANSPORTATION Ready access t places f emplyment, shpping, civic centers, scial centers and adjacent neighbrhds is a requisite f neighbrhd stability. The appraiser must take int cnsideratin the transprtatin requirements f the typical family and quantify the effect n value. H. UTILITIES AND SERVICES The appraiser must cnsider these utilities and neighbrhd services: plice and fire prtectin, telephne services, electricity, natural gas, garbage dispsal, street lighting, water supply, sewage dispsal, drainage, street imprvements and maintenance. Public services and utilities can affect value and must be quantified. A lack f these services shuld be nted and quantified in the valuatin analysis. I. NEIGHBORHOOD CHANGE CONSIDERATIONS As time passes, desirability changes residential areas in any site. Therefre, give special cnsideratin t the fllwing: infiltratin f cmmercial, industrial r nncnfrming use psitive and negative effect n value f gentrificatin changes in the mbility f peple (emplyment shifts) weakly enfrced zning regulatin r cvenants J. MARKETABILITY The demand fr hme wnership in a neighbrhd is directly related t the marketability f the hmes in the neighbrhd r in cmpetitive neighbrhds. Hme wnership rates, vacancies and the marketing time f dwellings in a neighbrhd help the appraiser determine the strength f market demand and the extent f supply. K. SMALL COMMUNITY MARKET PREFERENCES A small twn may have its wn set f standards in architectural design, livability, style f mechanical equipment, lt size, placement f structures, nature f street imprvements and in all features f the physical prperty and envirnment. Judge each in light f lcal standards and preferences. L. OUTLYING SITES AND ISOLATED SITES The segment f the market interested in purchasing hmes in these sites cmpares the advantages and disadvantages f ther utlying r islated sites. M. STUDY OF FUTURE UTILITY The study f future utility is typically cvered in the appraiser's Highest and Best Use Analysis and includes: 2-4

19 (2-1) selecting pssible uses rejecting uses that are bviusly lwer r higher than the mst prbable use analyzing differing mtives f thse buyers The study f the future uses and utility f a particular prperty will lead the appraiser t the prperty's Highest and Best Use. N. CONSIDERATION OF GENERAL TAXES AND SPECIAL ASSESSMENTS When estimating value, accunt fr general taxes and special assessments: General real estate taxes related t specific sites are a recurring peridic expense in the wnership f taxable real prperty and must be accunted fr in the value estimate. Special assessments f varius types are frequently an additinal expense f wnership and must similarly be accunted fr in the value estimate. Determine the relative effect f the real estate tax and/r special assessment's burden n the desirability f the site. Enter this infrmatin n the URAR. 1. Assessment The real estate tax liability is cmputed by multiplying the assessed value by the tax/mileage rate, which is typically expressed in dllars per hundred r dllars per thusand f assessed value. In the addendum t the VC, state the assessment, real estate tax liability and tax year. State the assessed market value f the subject prperty in the addenda. > If there is n methd t relate the assessment t market value, such as new cnstructin where reasnable assessment may nt exist, mark the assessed market value respnse as "N/A". 2. Special Assessment A special assessment can be calculated in tw ways: the same way as real estate taxes, r n a pr-rated basis Determine hw the special assessment is calculated and reprt the special assessment liability n the URAR. > If the prperty des nt have special assessment, mark the URAR "N/A". Fr example: An rganizatin that services a cmmunity creates an annual perating budget. Each prperty becmes liable fr its percentage f that budget based n the percentage f frnt feet their prperty has cmpared t the ttal amunt f frnt feet as a special assessment in this cmmunity. 2-5

20 2-2 SPECIAL NEIGHBORHOOD HAZARDS AND NUISANCES Physical cnditins in sme neighbrhds are hazardus t the persnal health and safety f residents and may endanger physical imprvements. These cnditins include unusual tpgraphy, subsidence, fld znes, unstable sils, traffic hazards and varius types f grssly ffensive nuisances. When reprting the appraisal, cnsider site hazards and nuisances. > If site hazards exist and cannt be crrected but d nt meet the level f unacceptability, the appraisal must be based upn the current state. > If the hazard and/r nuisance endangers the health and safety f the ccupants r the marketability f the prperty, mark "YES" in VC-1 and return the unfinished appraisal t the lender. The lender, wh is ultimately respnsible fr rejecting the site, relies n the appraiser's site analysis t make this determinatin. Guidelines fr determining site acceptability fllw. The appraiser is required t nte nly thse readily bservable cnditins. A. UNACCEPTABLE SITES FHA guidelines require that a site be rejected if the prperty being appraised is subject t hazards, envirnmental cntaminants, nxius drs, ffensive sights r excessive nises t the pint f endangering the physical imprvements r affecting the livability f the prperty, its marketability r the health and safety f its ccupants. Rejectin may als be apprpriate if the future ecnmic life f the prperty is shrtened by bvius and cmpelling pressure t a higher use, making a lng-term mrtgage impractical. These cnsideratins fr rejectin apply n a case-by-case basis, taking int accunt the needs and desires f the purchaser. Fr example, a site shuld nt be cnsidered unacceptable simply because it abuts a cmmercial use; sme cmmercial uses may nt appeal t a specific market segment while ther cmmercial uses may. If the cnditin is clearly a health and safety vilatin, reject the appraisal and return it t the lender. If there is any dubt as t the severity, reprt the cnditin and submit the cmpleted reprt. The lender must clear the cnditin and may require an inspectin r reject the prperty. Fr thse cnditins that cannt be repaired, such as site factrs, the appraised value is based upn the existing cnditins. B. TOPOGPAPHY There are special hazards caused by unique tpgraphy. Fr example, denuded slpes, sil ersin and landslides ften adversely affect the marketability f hillside areas. When evaluating the site, cnsider earth and mud slides frm adjining prperties, falling rcks and avalanches. These ccurrences are assciated with steep grades and must be cnsidered in the site analysis. 2-6

21 (2-2) C. SUBSIDENCE Danger f subsidence is a special hazard that may be encuntered under a variety f circumstances: where buildings are cnstructed n uncntrlled fill r unsuitable sil cntaining freign matter such as rganic material where the subsil is unstable and subject t slippage r expansin In mining areas, cnsider the depth r extent f mining peratins and the site f perating r abandned shafts r tunnels t determine if the danger is imminent, prbable r negligible. The appraiser must nte any readily bservable cnditins, which indicate ptential prblems. Signs include fissure r cracks in the terrain, damaged fundatins, sinkhles r settlement prblems. If there is a danger f subsidence, the specific site will be deemed ineligible unless cmplete and satisfactry evidence can be secured t establish that the prbability f any threat is negligible. > If there is evidence f subsidence, the prperty is ineligible. Mark the "YES" clumn in VC- 1 under subsidence. D. OPERATING AND ABANDONED OIL OR GAS WELLS Operating and abandned il and gas wells pse ptential hazards t husing, including ptential fire, explsin, spray and ther pllutin. 1. Existing Cnstructin N existing dwelling may be lcated clser than 300 feet frm an active r planned drilling site. Nte that this applies t the site bundary, nt t the actual well site. 2. New r Prpsed Cnstructin If an perating well is lcated in a single-family subdivisin, n new r prpsed cnstructin may be built within 75 feet f the perating well unless mitigatin measures are taken. This measure is designed t: avid nuisance during maintenance diminish nise levels caused by pumping reduce the likelihd f cntaminatin by ptential spills The appraiser must examine the site fr the existence f r any readily bservable evidence f a well. 2-7

22 (2-2) 3. Abandned Well A letter may be btained frm the respnsible authrity in the state gvernment stating that the subject well was safely and permanently abandned. When such a letter is prvided, a dwelling may be lcated n clser than 10 feet frm the abandned well. When a letter is nt prvided, the dwelling must be lcated at least 300 feet frm the abandned well. The lender is respnsible fr btaining the letter; the appraiser must nte the site f the well and verify the existence f the letter. 4. Special Case - Prpsed, Existing r Abandned Wells Hydrgen sulfide gas emitted frm petrleum prduct wells is txic and extremely hazardus. Minimum clearance frm sur gas wells may be established nly after a petrleum engineer has assessed the risk and state authrities have cncurred n clearance recmmendatins fr petrleum industry regulatin and fr public health and safety. > If there is readily bservable evidence that the cnditins exist, mark the "YES" clumn in VC-1 under perating and abandned wells. > If an inspectin by a qualified persn verifies that the cnditin exists and is acceptable based n the standards defined abve, accunt fr the presence f wells in the valuatin f the prperty. E. SLUSH PITS A slush pit is a basin in which drilling "mud" is mixed and circulated during drilling t lubricate and cl the drill bit and t flush away rck cuttings. Drilling mud nrmally cntains large quantities f bentnite - a very expansive sil material. This results in a site with the ptential fr great sil vlume change and, therefre, damage t structures. T be eligible fr FHA mrtgage insurance, all unstable and txic materials must be remved and the pit must be filled with cmpacted selected materials. > If a prperty is prpsed near an active r abandned well, call fr a survey t lcate the pits and their impact n the subject prperty. > If there is any readily bservable evidence f slush pits, mark the "YES" clumn in VC

23 (2-2) F. HEAVY TRAFFIC Clse prximity t heavily traveled radways can have a negative effect n the marketability and value f sites because f excess nise and danger. Prperties backing t freeways r ther thrughfares that are heavily screened r where traffic is well belw grade and at a sufficient distance frm the prperty may nt affect value. Fr detailed nise acceptance levels, reference 24 CFR > If there is significant nise r unsafe traffic cnditins that endanger the ccupants r affect the marketability f the prperty, mark "YES" in VC-1. Typically, traffic hazards cannt be crrected. Therefre, the appraiser must quantify the effect n value if the prperty is marketable. This adjustment shuld be supprted by cmparable transactins. This cnditin culd be the reasn that a lender ultimately rejects the prperty. D nt reject existing prperties nly because f heavy traffic if there is evidence f acceptance within the market and if use f the dwelling is expected t cntinue. G. AIRPORT NOISE AND HAZARDS Sites near an airprt may be subjected t the nise and hazards f lw-flying aircraft. Appraisers must identify affected prperties, review airprt cntur maps and cnditin the appraisal accrdingly. D nt reject existing prperties nly because f airprt influences if there is evidence f acceptance within the market and if use f the dwelling is expected t cntinue. HUD's psitin is that because the prperties are in use and are expected t be in use int the near future, their marketability shuld be the strngest indicatr f their acceptability. Marketability shuld accunt fr the fllwing cnsideratins: plans fr future expansin f airprt facilities prspective increases in the number f planes r flights using the field r specific runways the timing and frequency f the vlume f flights any ther factrs that may increase the annyance f having the airprt nearby excessive nise If changes are likely, the appraiser must anticipate any adverse effect that these changes are likely t have n the marketability f the prperty. The appraiser shuld judge each situatin n its merits. Cmpare the effect f aircraft activity n the desirability f a particular site with ther sites that are: imprved with similar structures cnsidered cmpetitive with thse lcated in the subject neighbrhd H. SPECIAL AIRPORT HAZARDS HUD requires that the buyer f a prperty lcated in a Runway Clear Zne/Clear Zne is advised that the prperty is lcated in such a zne and f the implicatins assciated with that site. This includes the pssibility that the airprt peratr culd acquire the prperty in the future. 2-9

24 (2-2) 1. New and Prpsed Cnstructin New and prpsed cnstructin within Runway Clear Znes (als knwn as Runway Prtectin Znes) at civil airprts r within Clear Znes at military airfields are ineligible fr hme mrtgage insurance. Prperties lcated in Accident Ptential Zne I at military airfields may be eligible fr FHA insurance prvided that the prperty is cmpatible with Department f Defense guidelines. Fr mre infrmatin, see 24 CFR (b). If new r prpsed cnstructin lies within these znes, mark "YES" in VC Existing Cnstructin Existing dwellings mre than ne year ld are eligible fr FHA mrtgage insurance if the prspective purchaser acknwledges awareness that the prperty is lcated in a Runway Clear Zne/Clear Zne. The lender will furnish this disclsure frm t the buyer. Fr a sample f the buyer's acknwledgment certificatin, see HUD Handbk , REV-1, Chapters 4-26 (a) and (b). > Nte whether the prperty is in a Clear Zne and cnditin the appraisal n the buyer's acknwledgment. I. PROXIMITY TO HIGH PRESSURE GAS A dwelling r related prperty imprvement near high-pressure gas, liquid petrleum pipelines r ther vlatile and explsive prducts - bth abve grund and subsurface must be lcated utside f the uter bundary f the pipeline easement. > If the prperty is less than ten feet away, mark "YES" in VC-1. J. OVERHEAD HIGH-VOLTAGE TRANSMISSION LINES N dwelling r related prperty imprvement may be lcated within the engineering (designed) fall distance f any ple, twer r supprt structure f a high-vltage transmissin line, radi/tv transmissin twer, micrwave relay dish r twer r satellite dish (radi, TV cable, etc.). Fr field analysis, the appraiser n-lay use twer height as the fall distance. Fr the purpse f this Handbk, a High-Vltage Electric Transmissin Line is a pwer line that carries high vltage between a generating plant and a substatin. These lines are usually 60 Kilvlts (kv) and greater, and are cnsidered hazardus. Lines with capacity f kv and abve are cnsidered high vltage fr the purpse f this Handbk. High vltage lines d nt include lcal distributin and service lines. Lw vltage pwer lines are distributin lines that cmmnly supply pwer t husing develpments and similar facilities. These lines are usually 12 kv r less and are cnsidered t be a minimum hazard. These lines may nt pass directly ver any structure, including pls, n the prperty being insured by HUD. 2-10

25 (2-2) > If the prperty is within the unacceptable distance, mark YES" in VC-1. K. SMOKE, FUMES, OFFENSIVE NOISES AND ODORS Excessive smke, fg, chemical fumes, nxius drs,. stagnant pnds r marshes, pr surface drainage and excessive dampness are hazardus t the health f neighbrhd ccupants and adversely affect the market value f the subject prperty. > If these cnditins threaten the health and safety f the ccupants r the marketability f the prperty, mark "YES" in VC-1. If, hwever, the extent f the hazard is nt dangerus, accunt fr its effect in the valuatin f the prperty. > Include ther factrs that may affect valuatin such as ffensive drs and unsightly neighbrhd features such as stables r kennels. L. FLOOD HAZARD AREAS Designatin f Special Fld Hazard Areas The Federal Emergency Management Agency (FEMA) determines Special Fld Hazard Areas natinwide, (SFHA). FEMA issues Fld Hazard Bundary Maps t designate these areas in a cmmunity. A special fld hazard may be designated as Zne A, AO, AH, Al-30, AE, A99, VO r Vl-30, VE r V. Only thse prperties within znes 'A' and 'V' require fld insurance. Znes 'B' r 'C' d nt require fld insurance because FEMA designates nly znes A' and 'V' as "Special Fld Hazard Areas. " An appraisal reprt with a psitive indicatin in a Special Fld Hazard Area (SFHA) activates a cmmitment requirement fr fld insurance cverage. The appraiser must quantify the effect n value, if any, fr prperties within a designated fld map. A lender shall reject a prperty in any f these circumstances: if the prperty is subject t frequently recurring flding if there is any ptential hazard t life r safety if escape t higher grund wuld nt be feasible during severe flding cnditins FEMA Maps Fr cpies f FEMA's Fld Hazard Bundary Maps and Fld Insurance Rate Maps, cntact: Federal Emergency Management Agency (FEMA) FEMA Map Service Center P.O. Bx 1038 Jessup, MD Phne: Fax:

26 (2-2) Eligibility f Prperties fr FHA Insurance The lender is respnsible fr determining the eligibility f prperties in Fld Znes, and relies n the appraiser's ntatin n the URAR. 1. New and Prpsed Cnstructin If any part f the prperty imprvements essential t the prperty value and subject t fld damage are lcated within the 100-year fldplain, then the entire prperty, imprved and therwise, is ineligible fr FHA mrtgage insurance unless a Letter f Map Amendment (LOMA) r a Letter f Map Revisin (LOMR) is submitted with the case fr endrsement. Prpsed cnstructin where imprvements are lcated, r t be lcated, within a designated Special Fld Hazard Area (SFHA) is ineligible fr FHA insurance. This is true regardless f whether the prperty is cvered r will be cvered by fld insurance unless the lender can furnish evidence f a LOMA, a LOMR r evidence that the prperty is nt in a SFHA. Fr existing prperties lcated in a SFHA, make the apprpriate ntatin in the URAR. > If the prpsed imprvements are lcated in a SFHA and there is n LOMA r LOMR mark "YES" in VC-1 and return the unfinished appraisal t the lender until these dcuments are retrieved. 2. Existing Cnstructin Market attitude and acceptance determine the eligibility f existing prperties lcated in a designated SFHA. Fld insurance is required fr prperties accepted fr mrtgage insurance in a FEMA-designated SFHA. 3. Cndminium The Hmewners Assciatin is respnsible fr maintaining fld insurance n the prject as a whle, nt each individual unit. The appraiser must verify the site f a cndminium in the fldplain and make the crrect ntatin in the URAR. M. STATIONARY STORAGE TANKS Statinary Strage tanks cntaining flammable r explsive material pse ptential hazards t husing, including hazards frm fire and explsins. If the prperty is within 300 feet f a statinary, strage tank cntaining mre than 100 gallns f flammable r explsive material, the site is ineligible. Mark "YES" in VC-1 and return the unfinished appraisal t the lender. 2-12

27 3 PROPERTY ANALYSIS INTRODUCTION The FHA guidelines fr prperty analysis include specific requirements t which appraisers must adhere fr the appraisal t reflect an accurate valuatin that win: dente any deficiencies in the subject prperty prtect HUD's interest in that prperty The prperty analysis includes General Acceptability Criteria fr cnducting the appraisal t address FHA minimum prperty requirements. 3-1 APPRAISAL REQUIREMENTS The appraiser must make a cmplete visual inspectin f the subject prperty - interir and exterir - and cmplete the VC frm. The appraiser must take phtgraphs that shw the sides, frnt and rear f the subject prperty and all imprvements n the subject prperty with any cntributry value. A phtgraph f the street frntage is als required. The appraiser is required t submit a single phtgraph f each cmparable sale transactin in the addenda t the appraisal reprt. The map f prpsed cnstructin must clearly shw prpsed radways. The appraiser must prvide a cpy f a lcal street map that shws the lcatin f the prperty and each cmparable sale. If the subject prperty is prpsed cnstructin and the imprvement has nt started, the appraiser shuld take a phtgraph that shws the grade f the vacant lt. 3-2 ANALYSIS OF SITE Fr bth prpsed and existing cnstructin, the appraiser must determine the present highest and best use fr the site, disregarding imprvements that may exist r are prpsed fr the site. This cnclusin serves as the basis f cmparisn fr estimating the market price f the land and disclses the extent t which the existing r prpsed building imprvements are apprpriate r inapprpriate fr the site. This als frms the basis fr selecting cmparable land sales. The appraiser must analyze the site t: establish the basis fr cmparing the market estimates f sites in the estimate f replacement cst f the prperty determine suitability fr the existing r prpsed use 3-1

28 Carefully cnsider the tpgraphy, suitability f sil, ff-site imprvements, easements, restrictins r encrachments A. TOPOGRAPHY (3-2) Prper tpgraphy and site grading can be imprtant elements in preventing wet basements, damp crawl spaces, ersin f sils, and verflwing sewage dispsal systems. T ensure prper prtectin, the appraiser must analyze the relatinship f street grades, flr elevatins, and lt grades. If the fundatin r its bearing sils may be affected by seepage r frst, the dwelling is unacceptable unless the surface and subsurface water is diverted frm the structures t ensure psitive drainage away frm the fundatin. B. SUITABILITY OF SOIL Cnsider the readily bservable sil and subsil cnditins f the site including the type and permeability f the sil, the lcatin f the water table, surface drainage cnditins, cmpactin, rck frmatins and ther physical features that affect the value f the site r its suitability fr develpment. Als bserve the effects f the adverse features f the adjining land. C. OFF-SITE IMPROVEMENTS Cnsider the ff-site imprvements adjining the subject prperty, including street surface, curbs, sidewalks, curb cuts, driveways, aprns, etc., that are nt cntained within the legal bundaries f the site but enhance the market acceptance and the use and livability f the prperty. Als cnsider these situatins: Cmpare the subject prperty with the immediate neighbrhd t determine the dminant ff-site imprvements required by the market. Nte any necessary ff-site imprvements that are nt in existence r are prpsed fr the subject prperty and adjust fr them in the market value. Any prpsals fr installing ff-site imprvements and levying assessments by the lcal gverning bdy in the near future may affect value. These prpsals will necessitate a cmmitment cnditin that requires the installatin f imprvements and the payment f the assessment befre r immediately after insurance endrsement. D. EASEMENTS, RESTRICTIONS OR ENCROACHMENTS Cnsider all easements, restrictins r encrachments and their impact n the market value f the subject prperty and list them n the appraisal. These factrs are ften discvered during the survey and title reprt nce the appraisal has begun. Perfrm limited due diligence t verify the existence f these types f significant limiting factrs. Als recrd these items in the URAR which were cnsidered in the value estimate. E. ENCROACHMENTS As a general rule, an encrachment will cause a prperty t be ineligible fr FHA mrtgage insurance. Hwever, there are exceptins t this rule and further infrmatin can be fund by calling the lender. The appraiser shuld identify any f these cnditins: 3-2

29 encrachment f a dwelling, garage, anther physical structure r ther imprvement nt an adjacent prperty, right-f-way r utility easement encrachment f a dwelling, garage, anther physical structure r imprvements n the subject prperty encrachment f a dwelling, garage r anther physical structure int the setback requirement An encrachment may be acceptable if the adjining landwner r the lcal gverning authrity prvides a perpetual encrachment easement that is filed in the Cunty Clerk and Recrder's Office. The Direct Endrsement under-writer will handle this issue under the General Waiver guidelines. 3-3 ANALYSIS OF PHYSICAL IMPROVEMENTS Analysis f the physical imprvements results in cnclusins as t the desirability, utility and apprpriateness f the physical imprvements as factrs in determining mrtgage risk and the ultimate estimate f value. A. GROSS LIVING AREA Grss Living Area is the ttal area f finished, abve-grade residential space. It is calculated by measuring the utside perimeter f the structure and includes nly finished, habitable, abve-grade living space. Finished basements and unfinished attic areas are nt included in ttal grss living area. The appraiser must match the measurement techniques used fr the subject t the cmparable sales. It is imprtant t apply this measurement technique and reprt the building dimensins cnsistently because failure t d s can impair the quality f the appraisal reprt. B. BASEMENT BEDROOMS, BASEMENT APARTMENTS As a rule basement space des nt cunt as habitable space. If the bedrm des nt have prper light and ventilatin, the rm can nt be included in the grss living area. The fllwing requirements apply t the valuatin f belw-grade rms: The windwsill may nt be higher than 44 inches frm the flr. The windwsill must have a net clear pening (width x height) f at least 24 inches by 36 inches. The windw shuld be at grund level; hwever, cmpensating factrs may allw less. In all cases, use reasnable care and judgment. If these standards are nt substantially met, the basement area cannt be cunted as habitable space. C. DESIGN Design is the chesive element that blends the structural, functinal and decrative elements f a prperty int a whle. With gd design, the prperty's parts will be in harmny (each part with 3-3

30 (3-3) all the ther parts). The whle prperty, in turn, will be in harmny with its immediate site and envirnment Because gd design is recgnized and desired, the ecnmic life f prperties and neighbrhds will be extended and prices will typically exceed thse fr prperties ffering the same number f rms and area but lacking gd design. This cmpetitive advantage usually cntinues thrugh the entire ecnmic life f the prperty. The appraiser must recgnize this demnstrable price differential and reflect it in the cmparative adjustments f market data and the final finding f value. D. CONFORMITY OF PROPERTY TO NEIGHBORHOOD A residential prperty with gd physical characteristics may nt necessarily be gd security fr a mrtgage lan, even if it is situated in a gd lcatin. The prperty may be entirely apprpriate at anther lcatin, but nt in its actual lcatin. The prperty may be displeasing when viewed in relatin t its surrundings, and it may nt cnfrm in ther respects t the mst marketable use in the particular neighbrhd. When determining the effect f prperty-neighbrhd relatinships t marketability, cnsider elements ther than similarity f physical characteristics. Analysis f the Elements f Cnfrmity. Analysis f Cnfrmity requires cnsideratin f Suitability f Use-Type, Apprpriateness f Functinal Characteristics, Harmny f Design and Relatin f Expense f Ownership t Family Incme Levels. Suitability f Use-Type. The term Use-Type refers t the use fr which a dwelling is designed - single-family, tw-family, etc. In mst neighbrhds nly ne use-type is suitable. In sme neighbrhds, hwever, because f their hetergeneus develpment, several use-types may be fund suitable. Apprpriateness f Functinal Characteristics. Functinal Characteristics refer t the living facilities prvided in a residential prperty. They relate t site use and t arrangement, number and size f rms. Usually well-defined neighbrhd market preferences are bservable. Nncnfrmity may exist because f the placement f the huse n the site. Carefully cnsider any deviatin frm the accustmed r accepted placement t determine whether it adversely affects desirability. If a site is substantially smaller than the size typical in the neighbrhd, marketability may be limited. The shape r tpgraphy f a particular lt may make it less desirable than thse typical f the area. The number, arrangement and size f rms frequently cnfrm t definite preferences in given neighbrhds. In sme lcalities where ne-stry dwellings dminate, a tw-stry dwelling may meet cnsiderable market resistance. 3-4

31 Harmny f Design. Cnfrmity f the exterir design f a structure with ther structures in the immediate neighbrhd is nt imprtant unless it cntrasts inharmniusly with them. There may be cnsiderable variety in the exterir design f dwellings in a neighbrhd and yet each may present a pleasing appearance when viewed in relatin t its surrundings. On the ther hand, a dwelling may be withut any architectural faults and yet clash s vilently with the design f neighbring prperties that marketability may be seriusly limited. Relatin f Ownership Expense t Family Incmes. Families usually select hmes in neighbrhds where typical ccupants have financial means similar t their wn. A hme that is t cstly fr these families t purchase r maintain will have limited marketability. 3-4 REMAINING ECONOMIC LIFE OF BUILDING IMPROVEMENTS Because a building is subject t physical deteriratin and bslescence, its perid f usefulness is limited. As a building deterirates r becmes bslete, its ability t serve useful purpses decreases and eventually ends. This may ccur gradually r rapidly. A. ECONOMIC LIFE VS. PHYSICAL LIFE The ttal physical life f a building is the perid frm the time f cmpletin until it is n lnger fit r safe fr use r when maintaining the building in a safe, usable manner is n lnger practicable. The ttal ecnmic life f a building is the perid f time frm its cmpletin until it can n lnger prduce services r net returns ver and abve a return n the land value. Ecnmic life can never be lnger than the physical life, but may be and frequently is shrter. A structure that is sund and in gd physical cnditin with many years f physical life remaining may have reached the end f its ecnmic life - if its remaining years f physical usefulness will nt be prfitable. B. ESTIMATION OF REMAINING ECONOMIC LIFE In predicting the remaining ecnmic life f a building, cnsider these factrs: the ecnmic backgrund f the cmmunity r regin and the need fr accmmdatins f the type represented the relatinship between the prperty and the immediate envirnment the architectural design, style and utility frm a functinal pint f view and the likelihd f bslescence attributable t new inventins, new materials and changes in tastes the trends and rate f change f characteristics f the neighbrhd and their effect n land values 3-5

32 wrkmanship, durability f cnstructin and the rate with which natural frces cause physical deteriratin the physical cnditin and prbable cst f maintenance and repair, the maintenance plicy f wners and ccupants and the use r abuse t which structures are subjected C. END OF USEFUL LIFE OF BUILDING IMPROVEMENTS The useful life f a building has cme t an end: when the building can n lnger prduce annual incme r services sufficient t ffset maintenance expense, insurance and taxes t prduce returns n the value f the land AND when rehabilitatin is nt feasible The imprvements n the lt at the time have n mre value than the amunt btainable frm a purchaser wh will buy them and remve them frm the site. 3-5 CODE ENFORCEMENT FOR EXISTING PROPERTIES Lcal municipalities design lcal husing cde standards; therefre, enfrcement f such husing standards rests with the lcal authrity. HUD des nt have the authrity r the respnsibility fr enfrcing lcal husing cdes except fr mrtgages n prperties t be insured under Sectin 221(d)(2)-a prgram with mrtgage limits at $36,000. Lans insured under Sectin 221(d)(2) f the Natinal Husing Act require cde enfrcement. The appraiser shuld cntact the lender fr further instructins if the mrtgage is t be insured under Sectin 221(d)(2). 3-6 GENERAL ACCEPTABILITY CRITERIA FOR FHA-INSURED MORTGAGES These criteria define standards fr existing prperties t be eligible fr FHA mrtgage insurance. Underwriters bear primary respnsibility fr determining eligibility; hwever, the appraiser is the n-site representative fr the lender and prvides preliminary verificatin that these standards have been met. Many f the requirements are technical and beynd the expertise f the appraiser. They are presented here fr reference, and the appraiser's respnsibility is nted by categry. These criteria frm the basis fr identifying the deficiencies f the prperty that the appraiser must nte in the VC frm and that must be addressed by the lender befre clsing. When examinatin f existing cnstructin reveals nncmpliance with the General Acceptability Criteria, an apprpriate specific cnditin t crrect the deficiency is required if crrectin is feasible. If crrectin is nt feasible and cmpliance can be effected nly by majr repairs r alteratins, the lender will reject the prperty. The appraiser is nly required t nte cnditins that are readily bservable. As-Repaired Appraisal. The appraiser prepares the valuatin "as-repaired" subject t the cnditins nted n the VC frm. Thse items nt listed n the VC will frm the basis f cmparisn t cmparable prperties fr physical cnditins. 3-6

33 (3-6) Required repairs are limited t thse repairs necessary t preserve the cntinued marketability f the prperty and t prtect the health and safety f the ccupants. Deferred Maintenance. Any perable r useful element that will have reached the end f its useful life within tw years shuld be replaced. With respect t such deferred maintenance items, exercise gd judgment in requiring repair. Replacement Because f Age. If an element is functining well, d nt recmmend replacement simply because f its age. > If the septic system shws evidence f failure because f age, recmmend a specific inspectin. Valuatin Cnditins. The Valuatin Cnditins Frm and its prtcl help the appraiser evaluate the standards required by the General Acceptability Criteria. The criteria are described belw. The appraiser must ascertain if the cnditin called fr exists and mark yes if it des. > If the bserved deficiencies exist, mark "YES" in the apprpriate lcatin n the Valuatin Cnditins Frm, cnditin the appraisal n the requirement fr repair r further inspectin and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. The fllwing guidelines are HUD's General Acceptability Criteria fr existing prperties. They prvide general guidance fr determining the prperty's eligibility fr FHA mrtgage insurance. Fr instructins n filling ut the VC frm, see the prtcl in Appendix D. A. GENERAL ACCEPTABILITY CRITERIA These minimum requirements fr existing husing apply t existing buildings and t the sites n which they are lcated. The buildings may be: detached semidetached multiplex rw huses individual cndminium units These requirements als cver the immediate site envirnment fr the dwelling, including streets, ther services and facilities assciated with the site. 1. Subject Prperty The subject prperty must be adequately identified as a single, marketable real estate entity. Hwever, a primary plt with a secndary plt fr an appurtenant garage r fr anther use cntributing t the marketability f the prperty will be acceptable if the tw plts are cntiguus and cmprise a readily marketable real estate entity. 3-7

34 (3-6) 2. Hazards The prperty must be free f all knwn hazards and adverse cnditins that: may affect the health and safety f the ccupants may affect the structural sundness f the imprvements may impair the custmary use and enjyment f the prperty These hazards include txic chemicals, radiactive materials, ther pllutin, hazardus activities, ptential damage frm sil r ther differential grund mvements, grund water, inadequate surface drainage, fld, ersin, excessive nise and ther hazards n r ff site. > If the prperty meets the acceptability guidelines in the VC prtcl (Appendix D), quantify the deficiency's impact in the prperty valuatin. > If the prperty des nt meet the acceptability guidelines, nte the apprpriate hazard in VC-1 and explain. In the appraisal f new and prpsed cnstructin, special cnditins may exist r arise during cnstructin that were unfreseen and necessitate precautinary r hazard mitigatin measures. HUD will require crrective wrk t mitigate ptential adverse effects frm the special cnditins as necessary. Special cnditins include: rck frmatins unstable sils r slpes high grund water levels springs ther cnditins that may have a negative effect n the prperty value The builder must ensure prper design, cnstructin and satisfactry perfrmance when any f these issues are present. Fr specific instructins abut nting this infrmatin in the VC frm, see VC-1 in the prtcl (Appendix D). 3. Sil Cntaminatin a. Septic and Sewage If a septic system is part f the subject prperty, the appraiser must determine whether the area is free f cnditins that adversely affect the peratin f the system. Cnsider the fllwing: 3-8

35 (3-6) the type f system tpgraphy depth t grund water sil permeability the type f sil t a depth several feet belw the surface If in dubt abut the peratin f sewage dispsal systems in the neighbrhd, mark "YES" in VC-2, cnditin the appraisal n further inspectin and prepare the appraisal "as-repaired" subject t satisfactin f the cnditin. The lender will cntact the lcal health authrity r a prfessinal t determine the viability f the system. b. Other Sil Cntaminants The fllwing cnditins may indicate unacceptable levels f sil cntaminatin: pls f liquid, pits, pnds, lagns, stressed vegetatin, stained sils r pavement, drums r drs. > If there is evidence f hazardus substances in the sil, require further inspectin. Mark "YES" in VC-2, cnditin the appraisal n further inspectin and prepare the appraisal "as-repaired" subject t the satisfactin f cnditin. c. Undergrund Strage Tanks During the site inspectin, the appraiser must walk the prperty and search fr readily bservable evidence f undergrund strage tanks. Evidence wuld include fill pipes, pumps, ventilatin caps, etc. > If there is evidence f undergrund strage tanks, require further analysis. Mark "YES" in VC-2, cnditin the appraisal n that requirement and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. 4. Drainage The site must be graded t prvide psitive drainage away frm the perimeter walls f the dwelling and t prevent standing water n the site. Signs f inadequate draining include standing water prximate t the structure and n mitigatin measures such as gutters r dwnsputs. Fr specific instructins abut nting this infrmatin in the VC frm, see VC-3 in the prtcl (Appendix D). > If drainage is inadequate and needs imprvement, mark "YES" in VC-3, make a repair requirement, cnditin the appraisal n that requirement and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. 3-9

36 (3-6) 5. Water Supply And Sewage Systems Each living unit must cntain the fllwing: dmestic ht water a cntinuing and sufficient supply f ptable water under adequate pressure and f apprpriate quality fr all husehld uses sanitary facilities and a safe methd f sewage dispsal Cnnectin must be made t a public water/sewer system r a cmmunity water/sewer system, if cnnectin csts t the public r cmmunity system are reasnable (3% r less f the estimated value f the prperty). If cnnectin csts exceed 3%, the existing nsite systems will be acceptable prvided they are functining prperly and meet the requirements f the lcal health department. > If the crrectin is feasible, require cnnectin. Mark "YES" in VC-4, cnditin the appraisal n the requirement and prepare the appraisal as repaired" subject t the satisfactin f the cnditin. a. Individual Water Supply and Sewage Dispsal Systems If water and sewer systems are nt cnnected t public systems, the water well and/r septic system must meet the requirements f the lcal health authrity with jurisdictin. If the lcal authrity des nt have specific requirements, the maximum cntaminant levels established by the Envirnmental Prtectin Agency (EPA) will apply. If the authrity is unable t perfrm the water quality analysis in a timely manner, a private cmmercial testing labratry r a licensed sanitary engineer acceptable t the authrity may take and test water samples. Each living unit must be prvided with a sewage dispsal system that is adequate t dispse f all dmestic wastes and des nt create a nuisance r in any way endanger the public health. Individual pit privies are permitted where such facilities are custmary and are the nly feasible means f waste dispsal and, if they are installed in accrdance with the recmmendatins f the lcal Department f Health. > If there is a well r septic system n the prperty, mark "YES" in VC4, cnditin the appraisal n further inspectin by the lender and prepare the appraisal "as-repaired" subject t satisfactin f the cnditin. A dmestic well must be a minimum f 50 feet frm a septic tank, 100 feet frm the septic tank's drain field and a minimum f 10 feet frm any prperty line. 3-10

37 > Clearly shw the lcatin f private wells and septic systems n the site sketch and nte the distance between the tw b. Unacceptable Cnditins The fllwing water well cnditins are unacceptable and must be nted in VC-4: mechanical chlrinatrs water flw that decreases nticeably when simultaneusly running water in several plumbing fixtures (the well may nt be able t prvide a cntinuus, adequate supply f water) prperties served by dug wells unless a cmplete survey cnducted by an engineer was delivered t the lender and subsequently given t the appraiser prperties served by springs, lakes, rivers r cisterns (3-6) T be cnsidered acceptable, the engineer's survey must include these items: a health reprt with n qualificatins indicatin that an inperative well was cased, sealed and capped with cncrete t a depth f at least 20 feet a pump test indicating a flw f at least 3-5 gallns per minute supply fr an existing well, and 5 gallns per minute fr a new well an acceptable septic reprt n indicatin f expsure t envirnmental cntaminatin, mechanical chlrinatin r anything else that adversely affects health and safety > If these requirements fr individual wells r septic tanks are nt met, nte them in VC-4 and prepare the appraisal "as-repaired" subject t further inspectin. The lender will require the engineer's fllw-up reprt and will arrange fr any required crrective measures. 6. Wd Structural Cmpnents: Termites Termites can cause serius prblems in the wd structural cmpnents f a huse and may g undetected fr a lng perid f time. FHA requires maximum assurances that a hme is free f any infestatin. A pest inspectin is always required fr: 3-11

38 (3-6) any structure that is grund level any structure where the wd tuches grund Structures in a gegraphic area with n active termite infestatin may nt require a pest inspectin. Hwever, the appraiser must always nte: any infestatin any damage resulting frm previus infestatin whether damage frm infestatin has been repaired r is in need f repair Observe all areas f the prperty that have ptential fr termite infestatin, including the bttms f exterir drs and frames, and wd siding in cntact with the grund and crawl spaces. Examine mud tunnels running frm the grund up the side f the huse fr pssible evidence f termite infestatin. > If there is any evidence f termite infestatin, require an inspectin by a reputable licensed termite cmpany. Mark "YES" in VC-5, cnditin the appraisal n the requirement and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. Fr specific instructins n nting this infrmatin in the VC Frm, see VC-5 in the prtcl (Appendix D). 7. Streets Each prperty must be prvided with safe and adequate pedestrian and vehicular access frm a public r private street. Private streets must be prtected by permanent recrded easements and have jint maintenance agreements r be wned and maintained by a HOA. All streets must prvide all-weather access t all buildings fr essential and emergency use, including access fr deliveries, service, maintenance and fire equipment. FHA defines all-weather surface as a rad surface ver which emergency vehicles can pass in all types f weather. Streets must either be: dedicated t public use and maintenance OR retained as private streets prtected by permanent recrded easements (when apprved by HUD) > If these requirements are nt met, mark "YES" in VC-6 and prepare the appraisal "as-repaired" subject t the crrectin f this deficiency. 3-12

39 (3-6) 8. Defective Cnditins A prperty with defective cnditins is unacceptable until the defects r cnditins have been remedied and the prbability f further damage eliminated. Defective cnditins include: defective cnstructin pr wrkmanship evidence f cntinuing settlement excessive dampness leakage decay termites ther readily bservable cnditins that impair the safety, sanitatin r structural sundness f the dwelling The items utlined in VC-7: Structural Cnditins, are meant t alert the appraiser and the lender t the pssibility f defective cnditins. These items are readily identifiable characteristics that culd indicate ne f the defective cnditins. 9. Ventilatin Natural ventilatin f structural space - such as attics and crawl spaces - must be prvided t reduce the effect f excess heat and misture that are cnducive t decay and deteriratin f the structure. All attics must have ventilatin t allw misture and excessive heat t escape. The appraiser must check the attic areas t determine whether the ventilatin is adequate. > If ventilatin is nt prvided, make a cnditin fr repair, mark "YES" in VC7 and prepare the appraisal 'as-repaired" subject t the satisfactin f the cnditin. 10. Fundatins All fundatins must be adequate t withstand all nrmal lads impsed. Stne and brick fundatins are acceptable if they are in gd cnditin. The appraiser must review the cnditins in VC-8 fr evidence f cnditins that culd indicate safety r structural deficiencies that may require repair. > If the fundatin is deficient, mark "YES" in VC-8 and prepare the appraisal "asrepaired" subject t the repair f the deficiencies. 11. Crawl Space T ensure against cnditins that culd cause the prperty t deterirate and seriusly affect the marketability f the prperty, it is required that: 3-13

40 (3-6) There must be adequate access t the crawl space; the appraiser must be able t access the crawl space fr inspectin. Access is defined as ability t visually examine all areas the crawl space. Specifically, the minimum distance is 18 inches. The flr jists must be sufficiently abve grund level t prvide access fr maintaining and repairing ductwrk and plumbing. The crawl space must be clear f all debris and trash and must be prperly vented. The crawl space must nt be excessively damp and must nt have any water pnding. > If these requirements are nt met, mark 'YES" in VC-8 and prepare the appraisal "as-repaired" subject t repair f the deficiency. 12. Rf The cvering must prevent misture frm entering and must prvide reasnable future utility, durability and ecnmy f maintenance. When re-rfing is needed fr a defective rf that has three layers f shingles, all ld shingles must be remved befre re-rfing. The details f the prcess are prvided in the prtcl. The appraiser must bserve the rf t determine whether the deficiencies present a health and safety hazard r d nt allw fr reasnable future utility. The appraiser is nly required t nte readily bservable cnditins. > If the rf is deficient, mark "YES" in VC-9 and prepare the appraisal "as repaired" subject t the repair f the deficiency. Flat rfs typically have shrter life spans and therefre require inspectin. > If there is a flat rf mark "YES" in VC-9 and prepare the appraisal "as repaired" subject t further inspectin. 13. Mechanical Systems These are the requirements fr mechanical systems: must be safe t perate must be prtected frm destructive elements must have reasnable future utility, durability and ecnmy must have adequate capacity and quality 3-14

41 (3-6) The appraiser must bserve the systems in VC-10 and determine if any f the cnditins d nt meet the abve stated criteria. > If the systems require repair, mark "YES' in VC-10, cnditin the appraisal n the repair r further inspectin and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. > If systems culd nt be perated due t weather cnditins, explain that in VC-10, cnditin the appraisal n assumed functinality, and make a nte f this cnditin n the Hmebuyer Summary - Part 3 f the Cmprehensive Valuatin Package. 14. Heating Heating must be adequate fr healthful and cmfrtable living cnditins: Dwellings that use wd-burning stves r slar systems as a primary heat surce must have permanently installed cnventinal heating systems that can maintain a temperature f at least 50 degrees F. in areas cntaining plumbing systems. These systems must be installed in accrdance with the manufacturer's recmmendatins. Prperties with electric heating surces must have an acceptable electric service that meets the general requirements f the lcal municipal standards. All water heaters must have a nn-adjustable temperature and pressure-relief valve. If the water heater is in the garage, it must cmply with lcal building cdes. All nn-cnventinal heating systems - space heaters and thers - must cmply with lcal jurisdictinal guidelines. Slar energy systems are discussed in Appendix B. 15. Electricity Electricity must be available fr lighting and fr equipment used in the living unit. Refer t the specific instructins in the prtcl (Appendix D) fr determining adequate electricity. 16. Other Health And Safety Deficiencies The appraiser must nte and make a repair requirement fr any health r safety deficiencies as they relate t the subject prperty, including: brken windws, drs r steps inadequate r blcked drs steps withut a handrail thers 3-15

42 The appraiser must perate a representative number f windws, interir drs and all exterir and garage drs, as well as verify that the electric garage dr peratr will reverse r stp when met with resistance during clsing. If cnditins exist that require repair, mark "YES" in VC-11 and prepare the appraisal "asrepaired" subject t the satisfactin f the cnditin. 17. Lead-Based Paint And Other Hazards If the hme was built befre 1978, the appraiser shuld nte the cnditin and lcatin f all defective paint in the hme. Inspect all interir and exterir surfaces - wars, stairs, deck prch, railing, windws and drs - fr defective paint (chipping, flaking r peeling). Exterir surfaces include thse surfaces n fences, detached garages, strage sheds and ther utbuildings and appurtenant structures. > If there is evidence f defective paint surfaces, cnditin the appraisal n their repair, mark "YES" in VC-12 and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. Fr cndminium units, the appraiser needs t inspect nly the exterir surfaces and appurtenant structures f the unit being appraised and address the verall cnditin, maintenance and appearance f the cndminium prject. > If the cndminium prject was built befre 1978 and shws signs f excessive deferred maintenance r defective paint, mark "YES" in VC-13 and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. B. OTHER CRITERIA There are ther eligibility criteria that are nt part f the VC frm. The lender bears primary respnsibility fr these; hwever, they are prvided here s that the appraiser may reference them if questins arise during the prperty inspectin. 1. Party Or Lt Line Wall There must be adequate space based upn market acceptability between buildings t permit maintenance f the exterir walls fr detached hmes. 2. Service And Facilities Trespass. Each living unit must have the capacity t be maintained individually withut trespassing n adjining prperties. Utilities. Utilities must be independent fr each living unit except that cmmn services - water, sewer, gas and electricity - may be prvided fr living units under a single mrtgage r wnership. Each unit must have separate utility service shut-ffs. 3-16

43 (3-6) Each unit must have individual meters. Fr living units under separate wnership, cmmn utility services may be prvided frm the main service t the building line when prtected by an easement r cvenant and maintenance agreement acceptable t HUD. Individual utilities serving a unit must nt pass ver, under r thrugh anther unit, unless: - Prvisins have been made fr repairing and maintaining thse utilities withut trespassing n adjining prperties. OR - An easement f cvenant is made fr permanent right f access fr maintenance and repair f utilities. If a single drain line in the building serves mre than ne unit, the building drain clean-uts must be accessible frm the exterir. Other facilities must be independent fr each living unit, except cmmn services, such as laundry and strage space r heating, may be prvided fr tw-t-furliving-unit buildings under a single mrtgage. Dedicatin. Utilities must be lcated n easements that have been permanently dedicated t the lcal gvernment r apprpriate public utility bdy. This infrmatin must be recrded n the deed recrd s that the utility services match the easement. 3. Nn-Residential Use Design Limitatins A qualified prperty must be predminantly residential in use and appearance. Any nnresidential use f the prperty must be subrdinate t its residential use, character and appearance. A prperty, any prtin f which is designed r used fr nnresidential purpses, is eligible nly if the type r extent f the nnresidential use des nt impair and/r remve the prperty's residential character and appearance. 4. Access Ont Prperty Access t the living unit must be prvided withut passing thrugh any ther living unit. Access t the rear yard must be prvided withut passing thrugh any ther living unit. Fr a rw-type dwelling, the access may be by an alley, easement r passage thrugh the dwelling. 3-17

44 (3-6) 5. Space Requirements Each living unit must have the space necessary t ensure suitable living, sleeping, cking and dining accmmdatins and sanitatin facilities. 6. Bedrm Egress All bedrms must have adequate egress t the exterir f the hme. If an enclsed pati (slid walls) cvers the bedrm windw, it is pssible that the bedrm wn't qualify as a habitable bedrm. Security bars are acceptable if they cmply with lcal fire cdes. Occupants f a bedrm must be able t get utside the hme if there is a fire. 7. Energy Efficiency Fr new and prpsed cnstructin and prperties less than ne year ld, all detached ne- and tw-family dwellings and ne-family twnhuses nt mre than three stries in height must cmply with the CABO Mdel Energy Cde, 1992 Editin, Residential Buildings, except fr sectins , , 104 and 105. These sectins remain: Sectin , Histric Buildings The Appendix HUD Intermediate MPS Supplement Slar Heating and Dmestic Ht Water Systems, 1989 editin Valuatin prcedures fr slar energy systems can be fund in Appendix B.3. C. CONDITIONS NOT REQUIRING REPAIRS Cnditins that d nt rdinarily require repair include any surface treatment, beautificatin r adrnment nt required fr the preservatin f the prperty. These are sme examples: A wd flr's finish that has wrn ff t expse the bare wd must be sanded and refinished. Hwever, a wd flr that has darkened with age but has an acceptable finish des nt need plishing r refinishing. Peeling interir paint and brken r seriusly cracked plaster r sheetrck require repair and repainting, but paint that is adequate thugh nt fresh des nt need t be redne. Missing shrubbery r dead grass n an existing prperty des nt need t be replaced. Cleaning r remving carpets is required nly when they are s badly siled that they affect the livability and/r marketability f the prperty. 3-18

45 Installing paved driveways r aprns shuld nt be required if there is an therwise acceptable surface. Installing curbs, gutters r partial street paving is nt required unless assessment fr the same is imminent. Cmplete replacement f tile flrs is nt necessary if sme tiles d nt match, etc. Avid unnecessary requirements because they increase husing cst withut adding any basic amenities t the prperty. D. REPAIR CONDITIONS FOR NEW/PROPOSED CONSTRUCTION The appraiser must develp the cst apprach fr new r prpsed cnstructin and the nrmal site develpment csts must be included in the lt value. Where unusual cuts, fills, retaining walls, etc. are necessary t prepare the site fr the prpsed building imprvements, estimate the amunt by which the cst f the wrk exceeds the cst f preparing typical sites fr similar structures frm the Marshall and Swift Cst Handbk. This estimate supplements the estimate f the replacement cst f building imprvements. When estimating the market price f a site with unusual site characteristics that must be crrected, assume that the site is in the cnditin that will exist after the crrective wrk is cmpleted. Disregard the cst f the treatment, but use the value f the imprved site in the estimate f the replacement cst f the prperty. Use the supplemental cst estimate t: - determine the extent t which the replacement cst f the prperty will exceed the cst f a substitute prperty prduced by cnstructing identical imprvements n a typical site - indicate the extent t which value may be less than the replacement cst fr that part in excess f the cst f preparing the typical site D nt include the cst f treating unusual site characteristics in the estimate f replacement cst f building imprvements. It is necessary t avid including bth the effect f site treatment and the cst f the wrk in the estimate f replacement cst f the prperty. 3-19

46 4 THE VALUATION PROCESS INTRODUCTION This Chapter addresses the develpment f the three appraches t value: Sales Cmparisn Apprach Incme Capitalizatin Apprach Cst Apprach It als addresses their impact in arriving at a final value cnclusin that reflects the cnditins dented n the Valuatin Cnditins (VC) Frm. These appraches frm the fundatin fr develping a value and lead t the final recnciliatin fr an estimated market value. The VC frm identifies key cmpnents f the prperty analysis and requires the appraiser t: describe the results f the visual inspectin identify knwn cnditins, if any recncile their findings with the appraches t value This Chapter cnfrms t the current Unifrm Standards f Prfessinal Appraisal Practice (USPAP) and the requirements f the URAR. In develping and cming t a cnclusin abut value, the appraiser must be aware f and cmply with all state and federal laws and requirements. Furthermre, strict cmpliance with USPAP is required fr all FHA appraisals. 4-1 MARKET VALUE ESTIMATES In accrdance with HUD/FHA requirements, an appraiser must d the fllwing: define the type f value being cnsidered fr the prperty appraisal ascertain the definitin f market value apprpriate fr the appraisal indicate whether the estimate is the mst prbable price that the prperty will sell fr n the pen market > Fllw the standards f USPAP. Key sectins that are mst applicable are prvided belw. A. DEFINITION OF MARKET VALUE The definitin f market value that applies t HUD/FHA is cited frm the Unifrm Standards f Prfessinal Appraisal Practice. This is the definitin f value which must be used fr all appraisals perfrmed fr FHA-insured mrtgages. "The mst prbable price which a prperty shuld bring in a cmpetitive and pen market under all cnditins requisite t a fair sale, the buyer and seller each acting prudently and knwledgeably, and assuming the price is nt affected by undue stimulus." Implicit in this definitin is the cnsummatin f a sale as f a specified date and the passing f title frm seller t buyer under cnditins whereby: 4-1

47 (4-1) 1. The buyer and seller are typically mtivated. 2. Bth parties are well infrmed r well advised, and each is acting in what they cnsider their best interest. 3. A reasnable time is allwed fr expsure in the pen market. 4. Payment is made in terms f cash in United States Dllars r in terms f a financial arrangement cmparable theret. 5. The price represents the nrmal cnsideratin fr the prperty sld unaffected by special r creative financing r sales cncessins. B. PROPERTY RIGHTS APPRAISED Identifying prperty rights t be valued determines the criteria fr selecting market data and fr cmparable transactins. The fllwing table is an example f prperty rights. Prperty Type Occupancy Prperty Rights Appraised Single-family Owner Fee Simple Tw-t-Fur family One unit wner- Leased Fee ccupied, ther units rented All prperty types Grund lease Leasehld Estate The appraiser examines prperty rights t determine what rights, if any, the prperty wner has cnveyed t thers. The cnveyance f rights t thers impacts the value f the prperty. Fr example, a single-family wner-ccupied prperty has fee simple prperty rights that are abslute and unencumbered - unlike a leasehld estate where prperty rights are specified t use and ccupancy fr a stated term. The appraiser must determine t what extent, if any, the transfer f prperty rights impacts the prperty's value. Fee Simple is defined as abslute wnership unencumbered by any ther interest r estate. Lease Fee is defined as an wnership interest held by a landlrd with the right f use and ccupancy cnveyed by lease t thers; usually cnsists f the right t receive rent and the right t repssessin at the terminatin f lease. Leasehld Estate is defined as the right t use and ccupy real estate fr a stated term and under certain cnditins that have been cnveyed by a lease. C. PURPOSE The purpse f an appraisal is the stated reasn fr perfrming an appraisal assignment. The purpse is typically stated as the basis fr an underwriting decisin. Fr HUD, the purpse is t determine market value fr mrtgage insurance purpses. 4-2

48 D. INTENDED USE OF APPRAISAL/FUNCTION (4-1) The intended use r functin fr all appraisals prepared fr FHA is t supprt the underwriting requirements fr an FHA-insured mrtgage E. USE OF THE APPRAISAL The use f the appraisal is t supprt FHA's decisin t prvide mrtgage insurance n the real prperty that is the subject f the appraisal. Therefre, intended users include the lender and HUD. F. EFFECTIVE DATE OF VALUE The effective date f value is either the date when the appraiser physically inspects the subject prperty r anther date specifically defined by the lender. > If anther date is used as the effective date, indicate the alternative date and the date n which the subject prperty was physically inspected. G. SCOPE The appraiser must perfrm a cmplete appraisal as defined by USPAP, cnsidering all f the applicable appraches t value and develping the apprpriate appraches identified in this Handbk. Departure is nt allwed. H. SPECIAL LIMITING CONDITIONS AND ASSUMPTIONS The appraiser must adequately identify, reprt and quantify any extrardinary assumptins r limiting cnditins that directly impact the valuatin. Examples include: a negative external influence (prximity t a municipal landfill, fr example) prpsed rad imprvements a pending zne change 4-2 HUD/FHA REQUIREMENTS HUD/FHA requirements fr market value estimates are as fllws: The appraiser must appraise the prperty t determine market value under the requirements detailed in Chapter 4-1 f this Handbk. The appraiser must evaluate the physical cnditin f the prperty and nte it n the Valuatin Cnditins (VC) Frm f the Cmprehensive Valuatin Package. Nte any necessary repairs. If repairs are in prcess, disclse the extent r status f thse repairs at the time f the appraisal. Always base the value n the cmpletin f repairs and include this as a special limiting cnditin when repairs are required and expected t be cmpleted. The appraiser must evaluate whether the prperty is free f hazards, nxius drs, grssly ffensive sights r excessive nises that may: 4-3

49 - endanger the physical imprvements - affect the livability f the prperty r its marketability - affect the health and safety f its ccupants (4-2) > If any f these cnditins exist, recmmend crrectin f the prblem r rejectin f the prperty and explain. Fr mre infrmatin, see Chapter 2-2 f this Handbk. The appraiser must determine if the subject prperty pssesses sufficient remaining ecnmic life t warrant a lng-term mrtgage, assuming a reasnable level f cntinued maintenance. If the prperty des nt warrant a lng-term mrtgage it will be ineligible fr FHA mrtgage insurance. The appraiser must indicate if the prperty cnfrms t applicable Minimum HUD/VA Prperty Requirements detailed in Chapter 3. > If the prperty des nt cnfrm t the Minimum Prperty Requirements, nte it in the VC sectin f the appraisal reprt and require crrectin f the deficiency r rejectin f the prperty and explain. > If there are s many necessary repairs that an "as-repaired" value cannt be determined, r if crrecting the deficiencies wuld require majr rehabilitatin/alteratins, return the appraisal t the lender with a detailed explanatin. 4-3 NEW AND PROPOSED CONSTRUCTION REQUIREMENTS Befre perfrming an appraisal fr new r prpsed cnstructin, the appraiser must have the plans and specificatins and a fully cmpleted Builder's Certificatin. The lender must prvide this infrmatin t the appraiser prir t issuing the assignment. Withut these items, the prperty will nt be acceptable fr FHA insurance purpses. A. NEW CONSTRUCTION The appraiser must develp the cst apprach fr new cnstructin less than ne year ld. Appraise new cnstructin in the same way that existing prperties are valued under the specificatins utlined in this chapter f the Handbk. Als, cnsider using the Grss Rent Multiplier methd when develping the incme apprach fr three- r fur-unit buildings. B. PROPOSED CONSTRUCTION Appraise prpsed cnstructin cnsistent with the methdlgy presented in this chapter. USPAP requires that the appraiser be prvided with written specificatins f the prpsed structure. Specifically, the Lender must prvide the appraiser with these dcuments: builder's plans, specificatins and cnstructin dcuments cmpleted builder's certificatin (Frm HUD-92541) 4-4

50 (4-3) Builder's Warranty (Frm HUD-92544) the 10-year Warranty, when required (the Secretary has prpsed a 1-year Hme-Owner Warranty perid) all reprts and infrmatin available (i.e. sales agreement, title reprt, envirnmental assessments r studies and inspectin reprts) > If these dcuments are nt prvided, return the incmplete appraisal t the lender. Check the bx stating that the valuatin is subject t cmpletin and that the value is cntingent n the structure receiving a certificate f ccupancy. 4-4 UNIQUE PROPERTY APPRAISALS Appraisers are smetimes faced with unique prperties: a lg hme, an extra small hme, lwer than nrmal ceiling heights, etc. Eligibility f these prperties depends n whether r nt the prperty is structurally sund and readily marketable. If a prperty meets these criteria, the appraiser estimates market value. Hwever, depending n the uniqueness f a prperty, the final determinatin t accept r reject the prperty is made by the lending institutin's underwriter. Excess land is anther area in which t exercise cautin. Land is cnsidered t be excess if it is: larger than what is typical in the neighbrhd AND capable f a separate use If there is excess land, describe it but d nt value it. In this instance, the appraisal is based upn a hypthetical cnditin. A legal descriptin f the prtin being appraised is required. 4-5 COST APPROACH The cst apprach is an indicatin f value based n the premise that a buyer wuld nt pay mre fr a prperty than the cst t cnstruct a prperty f equal utility. The cst apprach is nt necessarily the best indicatin f market value fr many prperties, but it is ften applicable fr new(er) r prpsed cnstructin and special use prperties. Such situatins include the fllwing fr single family ne- t fur-unit dwellings: Prperty Age Prpsed Cnstructin New Cnstructin Existing, less than ne year Existing, regardless f age Cst-Apprach Requirement Required Required Required Market acceptability f cst as an indicatin f pricing and value 4-5

51 Unless the cst apprach is deemed reliable n the abve table r cnsidered applicable in the appraiser's judgment, develping this apprach is nt required fr a HUD/FHA appraisal. The reprting requirement f USPAP knwn as the departure rule des nt apply because the appraiser must always use the cst apprach t value when cnsidered applicable. USPAP Requirements Strict cmpliance with USPAP standards is required fr all FHA appraisals. Reprting Requirements > If the cst apprach was excluded, reprt it in the recnciliatin and insert the ratinale fr its exclusin. A. COST APPROACH METHODOLOGY 1. Land Value Estimate (4-5) Standard Rule 1-3(b) f USPAP requires appraisers t "recgnize that land is appraised as thugh vacant... ". The appraiser estimates the value f the land because it is generally cnsidered t be a permanent, nn-depreciating asset. There are exceptins t this generally agreed upn premise, but the exceptins will rarely be a factr in FHA/HUD related appraisals. Exceptins may include land with an ersin prblem r a plluted prperty. 2. Excess Land Excess Land is defined as the area by which the plt exceeds the area f a readily marketable real estate entity. This ccurs when the subject lt is cnsiderably larger than typical lts in the neighbrhd and the excess is capable f separate use. Generally, the defining characteristic is an excess prtin that can be subdivided and marketed as an individual parcel. Hwever, in small cmmunities and utlying areas, appraisers must use different criteria because the market may accept a wide variance in lt sizes. This segment f the market may shw wide differences in lt use. > If the plt cntains excess land, delineate and appraise separately the readily marketable real estate entity and the existing r prpsed imprvements. Describe the excess land but d nt appraise it with the primary 1-4 family residential building that is subject t a mrtgage. The lender will require that the value f excess land be excluded frm the maximum mrtgage amunt that will be calculated nly n a reasnable amunt f land and imprvements. 3. Sales Cmparisn Apprach Fr Land Value In areas with an active real estate market, the sales cmparisn apprach is generally the primary methd used. This methd allws fr cllecting, verifying and analyzing recent and similar land sales t be cmpared with the subject land. Befre a cnclusin is reached, the cmparable land sales are adjusted fr differences between the sales and the subject prperty. 4-6

52 (4-5) 4. Alsite In areas with a significant lack f cmparable sales t develp the sales cmparisn apprach, use the alsite methd, which assumes a market-accepted rati between land value and prperty value. Althugh the value estimate frm this methd is inherently less accurate than that f the sales cmparisn apprach, it is still an acceptable apprach. > The appraiser must dcument, supprt and justify the chsen alsite rati. 5. Extractin Extractin is a methd t deduct the depreciated cntributin f the subject's imprvement frm the ttal sales price f the prperty. The remainder represents an estimate f land value. This apprach is als inherently less accurate than the sales cmparisn apprach. > The appraiser must dcument, supprt and justify the estimate f the depreciated cntributin f the imprvements. B. IMPROVEMENT COST ESTIMATE Replacement cst is the preferred methd fr develping the Cst New f the subject imprvements. Typically the appraiser uses the Replacement Cst New and quantifies all frms f depreciatin, except bslescence. An alternative is the reprductin cst. HUD des nt require a specific methd. The replacement cst f prperty is estimated t enable the applicatin f the substitutin principle. Estimates f the replacement/reprductin cst f prperty are nt estimates f value, althugh they indicate the pssibility that value, in an equivalent amunt, may exist. Value depends entirely upn usefulness, nt n the cst. Value tends t cnfrm t cst, but this is nt t imply that it is always equivalent t cst. C. TYPICAL REPLACEMENT COST The replacement cst estimate must reflect the csts typically fund in an area - nt necessarily the csts f a particular builder r wner. This methd is typically preferred t the reprductin cst. D. UNUSUAL AND NON-TYPICAL COSTS Sme f the items r allwances in the cst estimate may nt represent equivalent value in a particular case. An wner might erect a huse that wuld cst mre than the huses that generally characterize the neighbrhd, but the value f the hme t the typical prspective wner in that neighbrhd might be less than the replacement cst f the prperty. The cst f cnstructin als may be in excess f value at a given time. Under sme circumstances, a reductin in cst may be in prspect. If cnstructin csts decline, value may als decline if it was riginally equal t cst. 4-7

53 (4-5) E. RECOMMENDED METHODOLOGIES Generally, the Marshall and Swift square ft methd is the mst applicable methd fr estimating the Replacement Cst New. This is a simplified prcedure and all appraisers must have the knwledge and skill t apply this methdlgy. This methd may nt be used fr custm-built hmes r unique buildings that require the segregated cst methd. Typical residential cnstructin with which HUD is invlved shuld be rated "fair," average" r "gd" quality. Mass prduced, tract-built hmes are rated either "fair" r average," meeting nly the minimum cnstructin requirements f lending institutins, mrtgage insurance agencies and building cdes. Appraisers must review the basic descriptin t determine the crrect cnstructin type. The appraiser will cmplete the cst apprach fr each prpsed cnstructin case based n the cnstructin type and quality rating f the prperty as shwn in the Marshall and Swift Cst Handbk. > Reference n the frm the pages and revisin date where the figures were btained (usually tw pages). > Include a marketing expense with the replacement cst f imprvements and an applicable current multipliers. F. REMAINING ECONOMIC LIFE Remaining ecnmic life is an estimate f the remaining time perid in which the imprvements cntinue t cntribute value t the prperty (building and imprvements). The appraiser must cnsider the effect, if any, f mdificatins r renvatins n the imprvements. This effect is typically expressed in years. 4-6 SALES COMPARISON APPROACH This is ften the mst applicable apprach in estimating the market value f a single-family ne- t furunit prperty. This apprach relies n: the availability f sales data the vlume f transactins the reliability f reprting the transactin data cnfirmed and develped under this apprach When develping a value indicatin by the sales cmparisn apprach, always include the assumptins and data frm the ther appraches n the VC frm. A. DATA REQUIREMENTS 1. Sale s Data vs. Cmparable Sale Any transactin in the market is a sale, but nt all sales are cmparable. Cnsider the type f transactin and physical characteristics f any sale befre cnsidering the sale a cmparable. 4-8

54 (4-6) 2. Selectin f Cmparable Sales fr Analysis Identify the relevant market based n the area in which the prperty cmpetes and the frces/dynamics that affect the cmparable sale prperties. This is necessary in relating the sales t the subject. Cnsider the amunt f time that has elapsed between the sale date and the effective date f the appraisal. Sales data shuld nt exceed six mnths between the date f the appraisal and the sale date f the cmparable, and must nt exceed twelve mnths. An explanatin is required fr sales dates in excess f six mnths. Cnsider neighbrhd and ther external factrs that influence prperty value, including real estate and nn-real estate influences. Fr example, when mst f the neighbrhd's residents are emplyed by ne majr emplyer wh is relcating ut f the regin, the neighbrhd may experience a decline in values. The term "nn-real estate influenced", hwever, must never include racial cmpsitin. Cnsider the quality and quantity f data available fr the given assignment. A lack f quality data in a market may frce reliance n data in a similar market nt necessarily the subject's immediate market area. Hwever, clearly explain and justify any sales frm utside the subject's immediate market area 3. Excluded Sales Transactins When using cnventinal sales data, the appraiser must be aware f the terms f the sale and adjust the cnventinal sales price t reflect any unusual terms. Fr example, there are sales that must be excluded; hwever, sme transactins may be included but adjusted fr factrs such as belw-market financing t prvide a cash equivalent sales price. 4. Current Offerings and Listings Analysis Using these types f sales are discuraged. Hwever, under certain slw market cnditins r in markets with rapidly increasing pricing, it may be acceptable t include prperties ffered fr sale. Prceed with cautin when analyzing and adjusting these fferings. Recgnize the inherent negtiability in price between an ffering and a cnsummated sale. Clearly label these cmparables as ffering, listing, under agreement, etc., but present them as additinal cmparable data nly. 5. Sales in Escrw If a bna fide transactin is imminent, sales in escrw are cnsidered t be reliable indicatins f market pricing. Exercise care in identifying the planned date f clsure fr the sale and any extraneus circumstances that may impede the clsing n the prjected date. 6. Distressed Sales Using distressed sales is strngly discuraged because f the special circumstances surrunding these transactins. 4-9

55 (4-6) 7. Resite Sales Using resite sales frm a crprate seller at a belw market value is strngly discuraged when the purchaser is the resite cmpany because f the unusual circumstances surrunding these transactins. Bth distressed and resite sales are strngly discuraged because they fail t meet the test f "market value," particularly item N. 1: "The buyer and seller are typically mtivated." Hwever, these sales can exceed nrmal market transactin and affect market values. 8. Cnfirmatin f Sales and Transactin Infrmatin The appraiser must verify all market and cmparable infrmatin used in the appraisal prcess and is accuntable fr any infrmatin presented as "fact" used t develp the subject prperty's value estimate. Verificatin ensures that the infrmatin is accurate and meaningful and prvides the appraiser with a firm understanding f market mtivatins and trends. The gal f the verificatin prcess is t ensure that nly infrmatin that accurately reflects current market cnditins and trends is presented and that meaningful cnclusins can be reached frm this infrmatin. During the verificatin prcess, it is necessary fr the appraiser t gain an understanding f the mtivatins surrunding the sale in rder t: determine if the sale was arm's length and nt distressed understand current market cnditins that influence value Whenever pssible, interview a party t the sale t determine the expectatins and mtivatins fr purchasing the prperty. Als, determine whether significant capital expenditures funded by the seller were made shrtly after the transactin ccurred. if s, determine whether the expenditure needs t be added back int the sale price t reflect the actual cnditins surrunding the sale. The appraiser must verify sale infrmatin with the buyer, the seller r ne f their representatives (brker, lender, lawyer, etc.). If the sale cannt be verified with smene wh has first-hand knwledge f the transactin, use public recrds. Hwever, the appraiser must clearly state hw the sale was verified and t what extent. D nt use r rely heavily n any sale that was nt verified with an invlved party r ne f their representatives because cncessins have becme mre cmmn in the market. B. ADJUSTMENT PROCESS Other factrs that affect the use f cmparable sales must be cnsidered. Accunt fr differences between the subject prperty and each cmparable sale. The analysis f sales includes bth quantitative and qualitative factrs. Remember that the cmparable data is adjusted t the subject prperty. Present these adjustments as dllar amunt figures and justify 4-10

56 (4-6) and explain the ratinale fr all adjustments. This infrmatin must be cntained in the appraiser file. The sequence f adjustments shuld fllw this frmat: The sequence f adjustments are part f the URAR. All FHA appraisers shuld be familiar with the adjustment grid within the URAR. Adjustments are indicated as a dllar amunt. If an adjustment is nt necessary, the appraiser can either enter "equal" r $0 as the adjustment. An individual line item adjustment shuld nt exceed +/- 10%. The ttal adjustments t the cmparables shuld nt exceed 15% net and 25% grss f the sales price. If adjustment exceeds a parameter, the appraiser must explain why as part f the appraisal reprt. Adjustments t the sales include: Prperty Rights Cnveyed. Refer t the prperty right appraised sectin f this chapter. This adjustment is always the first adjustment made t all sales. Sales r Financing Cncessins. Accunt fr and adjust fr any special sale r financing terms, including sales cncessins, nn-market financing terms, pints, buy dwns, clsing terms and swaps/exchanges. The mst cmmn scenari invlves the seller paying pints in the frm f settlement help t the buyer. T reflect the amunt, adjust the sales price f the cmparable sale dwnwards. Typically this amunt will nt exceed six percent f the sales price fr typical transactins. Cnditin f Sale. Accunt fr the cnditins surrunding the sale, including freclsure/distressed sale, purchased by an adjining wner, sld between family members, auctined r any unusual factr that culd be reflected in the price paid. Market Cnditins. Accunt fr changes that have ccurred r are ccurring frm the date f sale f the cmparable transactin t the date f appraisal, including appreciatin, new develpment, availability f financing, lan terms, supply and demand. Prperty Adjustments. These are required if the difference between the sale and the subject is quantifiable and supprted by the market. Site - Accunt fr site cnsideratins. Physical Characteristics - Accunt fr physical differences between the cmparables and the subject, including cnditin, view, design/appeal and quality f cnstructin. These are typically entered as individual categries. 4-11

57 Ecnmic Characteristics - Accunt fr ecnmic characteristics between the cmparables and the subject, including ccupancy, rent level, lease structure r terms. Nn-realty items. Nn-realty items, such as persnal prperty, may be included in value. These items are deducted frm r added t the ttal cnsideratin t reflect the cash equivalent price paid fr the real prperty nly. Other adjustments. Include physical characteristics that can be based n a dllar amunt. The quality and quantity f market data shuld guide the selectin f the mst applicable methd. 1. Supprt fr Adjustments Adjustments must be supprted by the market. The appraiser must use cautin in develping adjustments; nt all differences between the sale prperties and the subject prperty are recgnized as price-influencing factrs in the marketplace. Only thse factrs that are accepted as value-influencing factrs warrant adjustments. 2. Explanatin f Adjustments The appraiser must explain why an adjustment was made. If adjustments are made, the appraiser must explain the differences that supprt the adjustments made t each f the cmparables as they relate t the subject prperty. > Reprt the explanatin n the URAR and maintain it in the wrk papers. 3. Recnciliatin f Adjusted Sale Prices The appraiser must cnsider the strengths and weaknesses f each f the cmparable sales and develp this data int an indicatin f value by the sales cmparisn apprach. > Reprt the final recnciled value indicatin by the sales cmparisn apprach n the URAR. 4-7 INCOME APPROACH When the mtivatins f the buyer and the marketability f the prperty are based n its incme-prducing ptential, the incme apprach must be develped. This apprach applies when the entire prperty r ne r mre f the units is leased, regardless f the rental amunt and ccupancy. The ability f the prperty t be attractive t a renter and/r investr supprts the develpment f the incme apprach. Situatins where the incme apprach applies are presented n the fllwing chart. 4-12

58 (4-7) Prperty Occupancy Applicability Test Single-family Owner-ccupied Market indicatin f highest and best use as imprved (either fr rental r fr wnerccupancy) Single-family Vacant Market indicatin f highest and best use as imprved (either fr rental r fr wnerccupancy) Tw-family- One unit is wner- ccupied; Optinal, depending n the availability and the ther is vacant. reliability f market data Tw-family One unit is wner-ccupied; Required if the prperty is lcated in a the ther is rented. neighbrhd with ther rental prperties; therwise, ptinal, depending n the availability and reliability f market data Three-t-fur One unit is wner- ccupied; Required Family ther units are rented. One-t-fur Family Leasehld Estate Required One-t-fur Family Leased Fee Estate Required A. DATA REQUIREMENTS The appraiser must chse similar market rentals t cmpare t the subject prperty. Cnsider the transactin and physical characteristics f a rental befre cnsidering the rental as cmparable. 1. Cnfirmatin Of Leases And Transactin Infrmatin The appraiser must verify all cmparable infrmatin used in the appraisal prcess. The appraiser is liable and accuntable fr any infrmatin presented as a "fact" in develping the value estimate. This ensures that the infrmatin is accurate and meaningful and prvides the appraiser with an understanding f market mtivatins and trends. The gals f the verificatin prcess are t ensure: that nly the infrmatin that accurately reflects current market cnditins and trends is presented that meaningful cnclusins can be reached frm this infrmatin If pssible, interview the lessee r the lessr t determine their expectatins and mtivatin fr entering int the lease. 4-13

59 Verify lease infrmatin with the lessr/lessee r ne f their representatives (brker, agent, lawyer, etc.). If this verificatin is nt pssible, clearly state hw the lease was verified and t what extent. D nt rely heavily n any lease that was nt verified with an invlved party r ne f their representatives. 2. Adjustment Prcess The appraiser must cnsider ther factrs that affect the use f cmparable leases. The appraiser must accunt fr differences between the subject prperty and the cmparable leases t recncile the actual lease incme. This selectin f cmparable rentals is significant because the grss incme multiplier shuld nt be adjusted, nly the cmparable rental rate. These adjustments are typically presented as percentage r dllar amunt figures. The appraiser must be able t justify and explain the ratinale behind all adjustments. The sequence f adjustments shuld fllw the same frmat as that presented in the sales cmparisn apprach sectin; hwever, tailr the categries t the cmparable rentals. 3. The Incme Prjectin In develping the prjected grss rent fr the subject, the appraiser needs t review and analyze the leases in place n the effective date f the appraisal. Als, cnsider leases that will cmmence r terminate arund the effective date f the appraisal and the impact, if any, n the prperty. The appraiser must take apprpriate steps t ensure that the develpment f the incme apprach reflects the actual cnditins at the subject prperty. If the subject is new, cnsider when the prperty incme will stabilize. Include the justificatin fr any assumptin made - lease up time, fr example. The incme apprach is typically based upn the "as stabilized" premises. Supprt this apprach apprpriately and clearly state the date when stabilized incme will be achieved. B. DEVELOPMENT OF RATES The Grss Rent Multiplier (GRM) is the rati between the sales price f a prperty and its grss rental incme. This methd is used t develp indicatins f a prperty value. The appraiser must cnsider the strengths and weaknesses f each cmparable rental and develp an estimated multiplier that adequately reflects the incme-generating ability f the subject prperty. This rati is applied t the estimated incme fr the subject t cnclude an indicatin f value by the incme apprach. 4-8 FINAL RECONCILIATION The final analytical step in the valuatin prcess is t recncile value indicatrs. In this step, the appraiser must measure the strengths and weaknesses f each f the applicable appraches perfrmed and develp this data int a single value estimate. 4-9 RECONSIDERATION OF APPRAISED VALUE The underwriter may request recnsideratin f the appraised value when new market data exists that 4-14

60 may nt have been reflected in the appraisal. The lender can select new cmparables and request a reappraisal. This request frm the lender must be in writing and maintained in the appraiser's wrk file. The appraiser must decide whether t use the new cmparables and perfrm the reappraisal. If the cmparables were available when the initial appraisal was perfrmed, the lender may nt ffer pay fr the recnsideratin REPORTING THE APPRAISAL

61 5-0 INTRODUCTION Accurate and thrugh appraisal reprting is critical t the accuracy f underwriting fr the mrtgage insurance prcess. The need fr accuracy is greater fr FHA-insured mrtgages because buyers tend t have mre limited incme and lwer equity in the prperties. This chapter presents the requirements fr reprting cmplete and accurate appraisal infrmatin t HUD. An appraisal perfrmed fr HUD/FHA purpses requires that all sectins f the Cmprehensive Valuatin Package (CVP) must be cmpleted. The CVP cnstitutes the reprting instrument t HUD fr FHA-insured mrtgages. 5-1 REPORTING THE APPRAISAL When the appraisal is cmpleted, submit the CVP and all required attachments - maps, phtgraphs, sketches, etc. t the lender. Als, fr new and prpsed cnstructin, submit the plans, specificatins, cnstructin dcuments and the cmpleted builder's certificatin (Frm HUD-92541). Submit the riginal package and a cmplete cpy t the lender. The CVP is required fr reprting the appraisal findings, analyses and cnclusins abut the bserved cnditins f the prperty. A cmplete HUD appraisal package includes three parts: the Unifrm Residential Appraisal Reprt (URAR), the Valuatin Cnditins Frm and the Hmebuyer Summary. These are described belw. A. PART 1: UNIFORM RESIDENTIAL APPRAISAL REPORT (URAR) The URAR is the standard appraisal reprting frm available thrugh all lenders. The fllwing are required in reprting appraisal findings n the URAR: All infrmatin must be reprted cnsistently with the HUD prtcl in Appendix D f this Handbk. All findings must be reprted cnsistent with Standard 2 f USPAP fr a summary reprt. All bxes must be filled in and relevant factual data included, unless specifically nted. All calculatins must be verified. Cnsistency between the sectins must be verified. 1. Departure frm HUD Requirements HUD requirements are presented in this Handbk. Any departure frm these requirements must be explained in the URAR r as an attachment t the appraisal. Present the reasning, the result f such departure and any additinal limitatins t the use f the appraisal r the reprted value as a result f this departure. Departure frm USPAP is nt permitted fr an appraisal submitted t HUD. 2. Certificatin Within the URAR, the appraiser must certify that the reprted value is an unbiased, independent valuatin f the subject prperty. This certificatin is 5-1

62 (5-1) cnsistent with that required by USPAP. Of particular imprtance is the certificatin that the appraisal is nt based n any f the fllwing: a requested minimum value a specific value the apprval f a lan as indicated If the appraiser is subject t additinal certificatins in develping and reprting the appraisal, include them in the URAR reprt. Such additinal certificatins may be the result f state certificatin requirements in certain jurisdictins r f relatinships with prfessinal appraisal and real estate rganizatins. The assigned appraiser is required t sign the reprt making him/her fully and whlly accuntable fr the infrmatin presented n the URAR and in develping the appraisal findings. If any party prvided significant prfessinal assistance, name this party n the certificatin and nte the cntributin. 3. Statement f Limiting Cnditins Fr each appraisal, the URAR includes the standard limiting cnditins. The appraiser must cnfirm these limiting cnditins and strike any that d nt apply. Als, if there are additinal limiting cnditins, clearly state them. If the limiting cnditins differ r are cntrary t the limiting cnditins stated n the URAR, fully disclse thse limiting cnditins and make them knwn in the value estimate. Cite any value-influencing limiting cnditins with the reprt f the estimate f market value. The repair cnditins reprted in the VC segment f the reprt cnstitute a limiting cnditin fr the develpment f the appraisal because HUD appraisals estimate value "as-repaired." The reprted estimate assumes that the nted deficiencies have been crrected. It is, therefre, imprtant that the appraiser certify t testing specific systems and examining all areas f the huse t nte the deficiencies. B. PART 2: VALUATION CONDITIONS FORM The Valuatin Cnditins (VC) Frm specifically addresses physical cnditins f the prperty that may render the prperty uninhabitable r cause health and safety cncerns. Nte the cnditins bserved during the walk-thrugh n the VC frm as f the date f appraisal. A hme inspectin is nt required t cmplete the VC. The VC frm is divided int Site and Prperty Analysis as well as ther prperty related infrmatin. VC-1 identifies the site hazards and nuisances that may render a site ineligible fr FHA insurance. VC-2 thrugh VC-11 identify the basic structural and mechanical cmpnents f the prperty and are the bases fr determining if the prperty is habitable and eligible fr FHA-insured financing. 5-2

63 (5-1) VC-12 and VC-13 prvide further infrmatin n the prperty. The addenda include a prvisin fr current market assessed value and a summary f estimated repair csts. Each sectin must be cmpleted entirely, based n the instructins in the prtcl in Appendix D f this Handbk. The appraiser must bserve the prperty's cmpnents, test certain basic peratins, view areas f the hme that may include adverse cnditins and reprt n readily bserved adverse cnditins. In all instances, the bservatins are as f the effective date f value, as identified in the VC and appraisal segments. Fr each item in VC-1, a "YES" renders the prperty ineligible fr FHA mrtgage insurance. Fr each specific item in VC-2 thrugh VC-11, "YES" indicates a limiting cnditin n the appraisal subject t the repair f the deficiency r further inspectin. Fr each specific item in VC-2 thrugh VC-11, "NO" indicates that the appraiser did nt bserve a deficient cnditin. The appraiser may encunter a negative physical cnditin that des nt require repair r inspectin. In this instance the appraisal is based upn the existing cnditin. "NO" is nt a substitute fr a hme inspectin by a qualified prfessinal hme inspectr, but merely indicates that the appraiser did nt bserve the cnditin during the prperty inspectin fr valuatin purpses. Fr bth "YES" and "NO" respnses, exercise care and judgment in reprting the extent and the magnitude f the bserved cnditin. The mere presence f an item may nt require an inspectin r repair. Likewise, depending n the cnditin bserved, a minr bservatin may prve t be significant t the sundness f the prperty. The prperty analysis relies heavily n the appraiser's judgment. It is imprtant t nte all cnsideratins as cmments fr each Valuatin Cnditin. Fr detailed instructin regarding the Valuatin Cnditins Frm, please see the prtcl in Appendix D f this Handbk. Appraisals perfrmed fr HUD/FHA are nt intended t prtect the buyer: they prtect HUD. Many hmebuyers mistakenly believe that a HUD appraisal and subsequent inspectin is a guarantee that the prperty is free frm defects when, in fact, the appraisal nly establishes the value f the prperty fr mrtgage insurance purpses. Buyers need t secure their wn hme 5-3

64 inspectin thrugh the services f a qualified inspectr and satisfy themselves abut the cnditin f the prperty. If available in a timely manner, hme inspectin reprts shuld be sent t the appraiser; this affrds the appraiser the pprtunity t make valuatin adjustments as needed. C. PART 1: HOMEBUYER SUMMARY This part summarizes required repairs frm the appraiser's bservatin f the physical cnditin. The Hmebuyer Summary intends t prtect the hmebuyer by infrming him/her f any material cnditins that typically make the prperty ineligible fr FHA mrtgage insurance. > If any f the VC's are marked "YES" in the VC frm, the appraiser must dente it in the apprpriate bx f the Hmebuyer Summary and explain, in detail, the nature f the prblem. The summary als includes a ntice t the hmebuyer regarding the value f securing a hme inspectin, by a qualified inspectr. 5-2 ACCESS TO FORMS The Hmebuyer Summary and Valuatin Cnditins Frm are available electrnically frm the HUD Internet website: RECORD KEEPING HUD reserves the right t request and review the appraiser's wrk files supprting an FHA-insured mrtgage at any time and withut prir ntice. Appraisers n the FHA Register must cmply with the recrd-keeping and inspectin requirements as a cnditin f perfrming appraisals fr FHA-insured mrtgages. A. MINIMUM TERM FOR RECORD KEEPING The appraiser is required t keep supprting dcumentatin in additin t a cpy f the CVP. These files must be maintained fr five years after the date f preparatin r at least tw years after final dispsitin f any judicial prceeding in which testimny was given, whichever expires last. This is cnsistent with the Recrd Keeping Rule f USPAP. B. DOCUMENTATION FILE REQUIREMENTS Althugh there is n prescribed file fr-mat r cntent, the appraiser's wrk files must include infrmatin t supprt all findings, bservatins and cnclusins supprting the value estimate. The files must indicate the ratinale fr adjustments and the market data analyzed in the develpment f the appraisal reprt. The files must include dcumentatin f the acceptance f the assignment and histrical and factual infrmatin, such as phtgraphs and maps. A sample dcumentatin file index is prvided belw. This is nt a cmprehensive list f infrmatin. 5-4

65 C. SAMPLE DOCUMENTATION FILE Sectin Acceptance f assignment Prperty Descriptin Neighbrhd Cst Apprach (if applicable) Sales Cmparisn Apprach incme apprach (if applicable) VC Cnditins Nted Additinal Infrmatin Supprting Data File memrandum Legal descriptin Phtgraphs Flr plans Tax map and infrmatin Field ntes frm inspectin Listing infrmatin Offer t purchase Ntes frm the field visit Phtgraphs Demgraphic data Relevant Marshall Swift Valuatin infrmatin Calculatins perfrmed Land Sales detail Sale details and phtgraphs Transactin infrmatin Derivatin f adjustments Interview ntes Market rent cmparable infrmatin Cap rate justificatin Histrical financial statements Phtgraph f cnditin Field ntes Supprt fr any assumed repairs Calculatin f cst t repair a VC cnditin Surveys Relevant market data Other surces f data 5-5

66 6 APPRAISAL AND APPRAISER MONITORING 6-0 INTRODUCTION The review prcess is a critical quality cntrl and perfrmance mnitring mechanism fr HUD. FHA will mnitr appraisals and appraisers using statistical analysis and field reviews. Thrugh analysis f perfrmance measures, FHA will identify candidates fr field reviews. By perfrming statistical analysis as well as field reviews, HUD maintains the capability t bradly track its prtfli and investigate it in greater depth. 6-1 MONITORING AND STATISTICAL ANALYSIS The Real Estate Assessment Center (REAC) will cnduct statistical analysis t track the perfrmance f appraisers and prperties and t identify prblematic appraisals fr review. If the review and subsequent analysis indicate behavir that is ut f cmpliance with FHA guidelines, FHA may take enfrcement actin. The perfrmance categries belw will guide the mnitring and enfrcement effrts. 6-2 PERFORMANCE CATEGORIES The fllwing perfrmance categries allw FHA t mnitr each aspect f the appraiser's perfrmance. The table belw lists examples f perfrmance measures fr each categry. Perfrmance Categry Appraisal Prcess Appraisal Reprting Valuatin Cnditins Maintenance f Prfessinal Standards Field reviews Perfrmance Measure Transactin quality Prf f analysis Relevance f data Cmpleteness Mathematical Accuracy Identified repairs Maintenance f state licensure Disciplinary actins Supprted findings Required recrd keeping Respnsiveness t field review HUD expects a high level f prfessinalism, custmer service, technical expertise and recrd keeping frm appraisers. The abve measures demnstrate HUD's fcus n: cmplete, justifiable and accurate appraisals qualified and cmpetent appraisers prfessinalism accuracy 6-1

67 6-3 APPRAISAL REVIEW PROCESS The versight prcess includes statistical analysis f appraisals and field reviews. The reviews will be used t determine the reliability f the appraisal supprting FHA financing as well as the perfrmance f the appraiser. T gauge an appraiser's perfrmance, REAC will review a sample f appraisals perfrmed fr FHA ver a specified time perid and/r a specified number f appraisals perfrmed. 6-2

68 7 REGULATORY ENVIRONMENT, ENFORCEMENT AND SANCTIONS 7-0 INTRODUCTION This chapter describes the regulatry envirnment in which FHA single-family appraisals are perfrmed and the enfrcement and sanctins that are available t HUD and ther gvernment entities in that envirnment. Appraisers are subject t: federal laws and regulatins state licensing laws and regulatins the requirements assciated with any prfessinal appraisal designatins This chapter enumerates these requirements and explains their cnnectin t HUD's enfrcement and sanctins prcesses. 7-1 REGULATORY ENVIRONMENT A. FINANCIAL INSTITUTIONS REFORM, RECOVERY, ENFORCEMENT ACT OF 1989 ("FIRREA") FIRREA instituted refrm and regulatin f real estate appraising thrugh Title XI, the Real Estate Appraisal Refrm Amendments. The amendments achieved the fllwing: established the Appraisal Fundatin, cmprising the Appraiser Qualificatins Bard (AQB) and the Appraisal Standards Bard (ASB): - The AQB determines the minimum educatin, examinatin and experience requirements fr state-certified and state-licensed appraisers. - The ASB prmulgates the Unifrmed Standards f Prfessinal Appraisal Practice (USPAP). required that nly a state-certified r state-licensed appraiser may perfrm appraisals fr federally related transactins established that an appraiser trainee can sign an appraisal if a state-certified r statelicensed appraiser clsely supervises the trainee, signs the appraisal reprt and inspects the prperty established the definitin f a "state-certified real estate appraiser" as smene wh has satisfied the requirements in a state r territry whse criteria fr certificatin meets the minimum criteria fr certificatin by the Appraiser Qualificatin Bard f the Appraisal Fundatin established the state agencies t license, certify and supervise appraisers 7-1

69 All appraisers perfrming services fr FHA-insured mrtgages must cmply with USPAP in develping and reprting appraisals. Key aspects f USPAP include: Standard Ethics Rule Cmpetency Rule Departure Rule 1/ Jurisdictinal Exceptin Standard 1 Standard 2 Citatin Cnduct management, cnfidentiality and recrdkeeping Full respnsibility f appraiser t have the knwledge and experience t cmplete the assignment cmpetently r disclse any discrepancy befre acceptance and take all necessary steps t crrect Permits limited departures frm acceptable prtins f USPAP reducing the reliability f the valuatin Individual prtins f USPAP can be superseded by law r public plicy In develping a real estate prperty appraisal, an appraiser must be aware f, understand and crrectly emply the recgnized methds and techniques that are necessary t prduce a credible appraisal In reprting the results f a real estate prperty appraisal, an appraiser must cmmunicate each analysis, pinin and cnclusin in a manner that is nt misleading (7-1) In cmpliance with USPAP, unacceptable practices include: estimating a specified (predetermined) value determined by the lender fee splitting between lenders and appraisers ther practices that d nt cmply with HUD's standards Als, USPAP cntains statements n appraisal standards that have the full weight f USPAP. These statements were issued t clarify the existing standards. The ASB has als issued advisry pinins that currently d nt establish new standards but ffer advice n cmplex technical issues. B. FEDERAL FINANCIAL INSTITUTION REGULATORY AGENCIES The Federal Financial Institutin Regulatry Agencies issued a final rule n appraisals in June In general, the threshld fr requiring state-certified appraisers t perfrm appraisals n federally related transactins was raised t Tw Hundred Fifty Thusand Dllars ($250,000). 1/ FHA des nt permit departure frm USPAP. 7-2

70 (7-1) Hwever, FHA requires an appraisal fr all applicatins fr single-family mrtgage insurance, regardless f transactinal value C. FALSE, FICTITIOUS OR FRAUDULENT CLAIMS (18 U.S.C. 2 87, 1001) - CRIMINAL PENALTIES AND FINES These statutes prescribe criminal penalties fr any persn wh knwingly files a false claim n r against any department r agency f the United States Gvernment. D. FALSE, FICTITIOUS OR FRAUDULENT CLAIMS ON HUD(18 U.S.C. 1010, 1012) - CRIMINAL PENALTIES AND FINES These statutes prescribe criminal penalties fr any persn wh knwingly files a false claim n r against HUD. E. FEDERAL FALSE CLAIMS ACT (31 U.S.C ) - CIVIL FRAUD The Federal False Claims Act defines the civil mnetary damages impsed n any persn wh knwingly presents r files a false claim that was paid r apprved by the United States Gvernment. F. 24 CFR PART 28 - PROGRAM FRAUD CIVIL REMEDIES ACT (PFCRA) These regulatins define the administrative prcedures fr impsing civil penalties and assessments by HUD fficials against any persn wh makes r submits false claims r false statements t Federal authrities r t their agents. G. 24 CFR PART 30 - CIVIL MONEY PENALTIES These regulatins define the mney penalties that HUD may levy fr submissin f a false certificatin by anther persn - fr example, an appraiser wh makes a false certificatin at the bttm f the USPAP appraisal frm abut the truth/crrectness f the appraisal data. H. 24 CFR PART 24 - ADMINISTRATIVE SANCTIONS These regulatins define the administrative sanctins available t HUD fficials fr any persn determined t have vilated HUD regulatins and plicies. I. STATE LAWS AND PROFESSIONAL ORGANIZATIONS The appraiser must adhere t all state and lcal laws relating t appraisal, licensing and certificatin requirements. Als, as a vluntary member f an appraiser's prfessinal rganizatin, the FHA appraiser shuld adhere t that rganizatin's guidelines n appraiser cnduct. Hwever, HUD has n enfrcement pwers in private rganizatins. 1. State Certificatins Appraisers n the FHA Register must be licensed, certified-residential r certified-general appraisers. T perfrm appraisals fr FHA, appraisers must maintain and be able t prve that they are s certified. While sme states d nt require an appraiser t be certified, they prvide a licensing prgram s appraisers can meet federal guidelines. 7-3

71 7-2 ENFORCEMENT Appraisers must cmply with the practices f their state unless the requirements f the state cntradict thse f the federal gvernment; federal requirements preempt any and all state requirements. The appraiser must reprt t HUD any actin r pending actin that relates t appraisal reprts prepared by the appraiser tw years subsequent t the date n which the actin was initiated. After dispsitin f any disciplinary actin r adjudicatin f the actin, the appraiser must prvide HUD with the dcumentatin and fficial findings within 14 days. 2. Prfessinal Organizatins The appraiser may be a member r hld designatins in prfessinal rganizatins. Such invlvement is encuraged, but nt required. If the appraiser is a member, candidate r assciate f any rganizatin, the appraiser must reprt any adjudicated actins resulting in the suspensin f the appraiser t HUD within 14 days f such actin. On dispsitin f the actin r adjudicatin f the actin, the appraiser must prvide HUD with dcumentatin and fficial findings. HUD reserves the right t suspend any appraiser fund guilty f prfessinal miscnduct as adjudicated by the prfessinal rganizatin. FHA intends t hld appraisers accuntable fr valuatins that are incnsistent with USPAP r this Handbk. The Valuatin Cnditins Frm must accurately reflect any siteal, structural r mechanical deficiencies. FHA recgnizes that mst appraisals are prperly valued and d nt indicate imprper actin. Accrdingly, HUD emphasizes quality assurance, but will take enfrcement actin when necessary. A. STATE CERTIFICATION BOARDS HUD will enfrce actins against appraisers thrugh existing state certificatin and licensing bards. HUD is required by law t refer appraisers t these bards if HUD cnsiders the actins t be f such magnitude r frequency as t warrant such referral. B. PROFESSIONAL ORGANIZATIONS HUD will cperate with and refer cases t the enfrcement arms f all applicable prfessinal rganizatins. 7-3 APPLICABLE REMEDIES AND SANCTIONS FHA will review appraiser and appraisal perfrmance data. In making any determinatin, the fllwing will be cnsidered: the seriusness and extent f the nn-cmpliant actin the degree t which the appraiser is respnsible fr that actin 7-4

72 the frequency f the actin(s) any mitigating factrs HUD will impse sanctins n fur tiers: 1. Ntice f Appraisal Deficiencies and Remedial Educatin 2. Administrative Sanctins 3. Civil Sanctins 4. Criminal Sanctins (7-3) HUD expects that all appraisers perfrming appraisals fr FHA are knwledgeable f HUD's plicies and prcedures. If, hwever, minr appraisal errrs indicate lack f knwledge, HUD may require remedial educatin and training. Fr ffenses arising frm unethical behavir r fr repeated ffenses, HUD will apply mre serius sanctins. All sanctins will be reprted t the state regulatry agencies. The fllwing sectins generally define the actins taken under each tier. Generally, these penalties will be expunged after three years. A table prviding examples f ffenses and pssible sanctins is included at the end f this chapter. A. NOTICE OF APPRAISAL DEFICIENCIES AND REMEDIAL EDUCATION Educatin and training directives will be managed internally by HUD. If the evidence indicates that the appraisal deficiency is a matter f training, then the appraiser must underg prfessinal training. HUD will ntify the appraiser and infrm the appraiser f: the appraisal's deficiencies the findings that supprt the recmmended training the recmmended training the appraiser's right t refute the findings f the ntice The appraiser must appeal within 20 days frm receipt f the ntice if he r she disagrees with the findings. If the findings are adequately refuted, n actin will be taken against the appraiser and the circumstances surrunding that particular incident will be nted in the appraiser's file. Hwever, if the findings hld, the appraiser must cmply with HUD's requirements fr imprved perfrmance, including the type f training required and the time-frame fr cmpletin. This actin will g n recrd in the appraiser's file. B. ADMINISTRATIVE SANCTIONS Administrative sanctins will be managed internally by HUD and cnsist primarily f remval frm the FHA Register fr a specified time. Remval frm the FHA Register can be impsed fr 7-5

73 nncmpliance with FHA plicies and requirements n appraisals. HUD will cnsider the seriusness f the appraiser's acts r missins and any mitigating factrs. HUD/FHA will ntify the appraiser f the alleged vilatin and pending sanctin in writing. If the appraiser believes that remval frm the FHA Register is unwarranted, the appraiser must appeal in writing within 20 days and may arrange a meeting r cnference call with FHA at a mutually acceptable time. If there is evidence and dcumentatin f unacceptable perfrmance, appraisers will be remved frm the FHA Register at HUD/FHA's sle discretin. Upn any legally effected remval, HUD will ntify the state licensing r certificatin agency in writing that such appraiser has been remved frm the FHA Register. HUD will prvide the state agency with: the state license r certificatin number f the appraiser the reasn fr remval cpy f the riginal appraisals cpy f the review reprt In additin t remval frm the FHA Register, administrative sanctins include sanctins under 24 CFR Part 24, Debarment, Suspensin and Limited Denials f Participatin (LDP) frm HUD and gvernment-wide prgrams. C. CIVIL SANCTIONS HUD will pursue civil sanctins by initiating an investigatin f the alleged nn-cmpliant actin. A reprt cntaining the findings and cnclusins f the investigatin will be submitted t HUD's Office f the General Cunsel r The Enfrcement Center. If the Office f General Cunsel r The Enfrcement Center determines that the investigatin reprt supprts an actin, the respective ffice will submit a written request t the Department f justice fr apprval t pursue civil sanctins. Civil sanctins are pursuant t Part 24 CFR 28-PFCRA and are described in Chapter 7-1. D. CRIMINAL If the nn-cmpliant actin is s egregius as t vilate criminal law, HUD's Office f General Cunsel r the Inspectr General will refer the case t the Attrney General at the U.S. Department f Justice. E. PERFORMANCE VIOLATIONS AND LEVEL OF SANCTION The fllwing chart utlines the type f sanctin t be levied by the type f perfrmance vilatin. Fr example, the appraiser may receive a Ntice f Appraisal Deficiencies fr a square ftage errr f less than 10% as a first ffense. Hwever, repeatedly making this mistake will result in remval frm the FHA Register. If the vilatin is repeated s that it cnstitutes a pattern f miscnduct, it may be cnsidered grss negligence. The ffense culd als be cnsidered grss negligence if the ffense is s bvius that it culd nt have reasnably been the result f simple errr. In this example, the sanctin fr grss negligence includes remval frm the FHA Register and may include a Limited Denial f Participatin r Debarment. 7-6

74 Vilatins f intent include knwing and willful nncmpliance with FHA/HUD requirements, as well as extensive r repeated intentinal vilatins. In this example, the appraiser is guilty f intentinal miscnduct if he r she chses t disregard the requirement. Sanctins at this level may include debarment and civil and/r criminal penalties. The Department may impse civil mney penalties r ther sanctins fr minr vilatins if the Department determines that circumstances warrant. 7-6a

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81 8 MANUFACTURED HOMES DEFINITION A Manufactured Hme is a structure that is transprtable in ne r mre sectins. In traveling mde, the hme is eight feet r mre in width and frty feet r mre in length. A Manufactured Hme is designed and cnstructed t the Federal Manufactured Cnstructin and Safety Standards and is s labeled. When erected n site, the hme is: at least 400 square feet built and remains n a permanent chassis designed t be used as a dwelling with a permanent fundatin built t FHA criteria The structure must be designed fr ccupancy as a principal residence by a single family. 8-1 PROPERTY STANDARDS FOR TITLE II MORTGAGE INSURANCE The appraiser shuld be aware f the primary standards in this Handbk t prepare an appraisal fr underwriting purpses. These are the key standards: The site must be served by permanent water and sewer facilities apprved by the lcal municipal authrity, if available at the site. An all-weather radway must serve the site. The entire prperty must be taxed as real estate. The twing hitch r running gear must have been remved. The twing hitch r running gear must als have been remved fr prperties greater than ne year. N part f the finished grade level under the hme is belw the 100-year fld level. Structural integrity must have been maintained during transprtatin and sufficient anchring, supprt and stability must be evident. All manufactured hmes must have an affixed HUD seals(s) lcated n the utside f the hme. If the hme is a multi-wide unit, each unit must have a seal. These seals will be numbered sequentially. If the tags are missing frm the prperty, the appraiser must recmmend rejectin f the prperty and ntify the lender. In sme states, a manufactured hme may nt be resld withut a seal and hmes withut a HUD seal must be rejected. In states where resale withut a HUD seal is permissible, a manufacture's certificatin must be btained verifying the date f the sale. The certificatin label/seal shall be lcated at the taillight end f each transprtable sectin f the manufactured hme apprximately ne ft up frm the flr and ne ft in frm the rad side, r as near that site n a permanent part f the exterir f the manufactured hme unit as practicable. The radside is the right side f the manufactured hme when ne views the manufactured hme frm the tw bar end f the manufactured hme. (24 CFR (d)) 8-1

82 The hme must be erected n a permanent fundatin in cmpliance with the Permanent Fundatin Guide fr Manufactured Husing. All prpsed r newly cnstructed manufactured hmes must meet the standards set frth in the Permanent Fundatin Guide. A licensed prfessinal engineer's seal and signature (certificatin) is required t indicate cmpliance with the Fundatin Guide. The lender shuld furnish the appraiser with a design engineer's inspectin f the fundatin prir t the appraisal. Existing manufactured hmes in place ver ne year are t be inspected by the appraiser fr evidence f permanent cncrete ftings with tie-dwns anchred t the ftings. The appraiser must inspect the crawl space fr the fllwing: pured in place cncrete ftings placed belw the frst line supprting the manufactured hme carriage frame, tie-dwns anchred t the ftings, prtectin frm the elements and enclsed with material imperius t rt and infestatin and perimeter fundatin-type cnstructin with ftings extended belw the frst line. The appraiser must require an engineering inspectin if there is evidence f structural defects r ther prblems relating t the fundatin r set-up f the hme. The manufactured hme must nt have been cnstructed befre June 15, The unit must have been built t the manufactured husing cnstructin safety standards as evidenced by having a small, red metallic label attached t it. Any unit withut this label is unacceptable. If it has been remved, it cannt be reattached t make it acceptable fr FHA insurance. New, never ccupied hmes that are transprted directly frm the manufacturer r directly frm the dealership t the site are eligible fr insurance. Fr an existing manufactured hme, evidence must be prvided t verify that the hme was assembled in accrdance with the abve paragraphs and has nt been mved frm its initial installatin site. Additins r structural mdificatins may put the hme at risk if changes were nt perfrmed in accrdance with the HUD Manufactured Hme Cnstructin Safety and Standards. If the appraiser bserves changes t the riginal hme, an inspectin by the State Administrative agency, which inspects manufactured hmes fr cmpliance, must be required. If there is n agency willing r able t inspect existing hmes fr cmpliance t the Manufactured Hme Cnstructin and Safety Standards, the manufactured hme is unacceptable and shuld be rejected. 8-2 PROPERTY DESCRIPTION Measurement is based n the verall length, including living areas and ther prjectins that are at least seven feet in height. Length and width shuld nt include bay windws, rf verhangs, drawbars, cuplings r hitches. Each manufactured hme must have a data plate with the name f the manufacturer and the cnstructin date. 8-2

83 8-3 APPRAISER QUALIFICATIONS FOR MANUFACTURED HOMES CLASSIFIED AS PERSONAL PROPERTY Fr all appraisals f manufactured hmes classified as persnal prperty, lenders must engage independent fee appraisers wh have successfully cmpleted a specialized curse in manufactured hme valuatin based n the N.A.D.A. appraisal system. These independent fee appraisers must be knwledgeable in the business f manufactured hme retail sales. Appraisal services may be btained frm an appraisal cmpany if their appraisers meet these qualificatins. 8-4 MANUFACTURED HOME LOT APPRAISALS A manufactured hme lt appraisal may be requested t estimate land value in determining the maximum lan prceeds allwable fr a manufactured hme lt lan r a cmbinatin lan (hme and lt). A lt appraisal may als be requested t establish value fr claim purpses n a freclsed lt r manufactured hme-and-lt cmbinatin. When appraising manufactured husing, appraisers shuld use nrmal single-family residential appraisal techniques (see Chapter 4 f this Handbk). Give special cnsideratin t ther manufactured hmes as cmparables in appraising manufactured hmes. This will prvide a cmparable value indicatin frm which t make justifiable cnclusins. Therefre, make all effrts t btain such cmparables even thugh their distance frm the subject may be greater than nrmally desirable. If there are n manufactured husing sales within a reasnable distance frm the subject prperty, use cnventinally built hmes. Make the apprpriate and justifiable adjustments fr size, site, cnstructin materials, quality, etc. As a pint f reference, sales data fr manufactured hmes can usually be fund in lcal transactin recrds. A. MANUFACTURED HOME LOT SITES A manufactured hme lt may cnsist f: an interest in a manufactured hme cndminium prject (including an undivided interest in the cmmn areas) OR a share in a cperative assciatin that wns and perates a manufactured hme park The lt may be lcated within Native American Trust Lands if the brrwer wns r leases the lt. B. HOW TO PERFORM A MANUFACTURED HOME LOT APPRAISAL In additin t the single-family residential appraisal techniques (see Chapter 4 f this Handbk), the appraiser must take the fllwing steps when perfrming manufactured hme lt appraisals: The appraiser must btain Frm HUD-92802, Applicatin and Request fr Manufactured Hme Lt and/r Site Preparatin and the FHA case number frm the mrtgagee. 8-3

84 The appraiser must receive a cpy f the design engineer's inspectin f the fundatin frm the mrtgagee. The appraiser must estimate the value f the lt by cmparisn with ther lts ffering similar amenities. When the appraisal is cmplete, the appraiser must send the riginal and ne cpy f the appraisal reprt, a phtgraph f the lt and ne phtgraph f each cmparable t the lender fr review. 8-4

85 9 PLANNED UNIT DEVELOPMENTS AND CONDOMINIUMS 9-0 PLANNED UNIT DEVELOPMENT (PUD) A PUD is defined as a mixed-use residential develpment f single-family dwellings in cnjunctin with rental, cndminium, cperative r twn huse prperties. A residential develpment shuld be prcessed as a PUD if it has these minimum characteristics: a hmewner assciatin that hlds either title in fee r a lease f prescribed length n the cmmn area mandatry membership f all unit wners (r units) in the assciatin the right f all unit wners t participate by vte in the peratin f the assciatin lien supprted assessment f the members t meet the assciatin's budgeted perating csts (special assessments may be handled differently) T be eligible fr insurance endrsement, PUDs must be apprved by HUD. The lender is respnsible fr btaining a case number frm HUD t ensure that the PUD is already apprved. The appraiser shuld nte whether there is a case number. A. APPROACH TO VALUE The apprach t value fr a PUD is the same as the apprach t value fr ther types f develpments (see Chapter 4 f this Handbk). Frequently, hwever, n valid cmparisns are available that estimate market value. In these instances, appraisers shuld use the replacement cst estimate in valuatin. Estimate the replacement cst f imprvements, miscellaneus allwable csts and marketing expenses the same as any Sectin 203(b) case. If prperties in similar develpments in the area have been sld, then direct cmparisns are pssible and the Cmparative Apprach wuld be valid and shuld be used. B. ESTIMATE OF MARKET PRICE Estimating the market price f an equivalent site requires cnsideratin f these factrs nt usually encuntered in rdinary appraisals: Cnsider the size f individual sites when appraching the use f cmmn areas and recreatinal facilities. If there are similar develpments in the neighbrhd, cnsider a cmparisn f cmmn areas, including recreatinal amenities. If there are n similar develpments, place mre emphasis n the cst t prduce a similar site with similar facilities and benefits. Distribute the pr rata supprtable cst t maintain the cmmn imprvements, facilities and land wned by the hmewner's assciatin t each site in the develpment (subdivisin) and add it t the estimated value. 9-1

86 T reflect additinal amenities t the cmmn areas, include an estimate n the Marshall and Swift Frm On line 32, crss ut "landscaping cst" and enter additinal amenities". Cnsider maintenance charges regarding cluster arrangements. Fr example, nte whether the advantages f cluster arrangements are negated by high maintenance charges. Befre perfrming the assignment, check with the lender t ascertain that the prject is n an apprved list maintained by the Hme Ownership Center (HOC). Check the URAR item indicating that the prperty is within a PUD prject. 9-1 CONDOMINIUMS A cndminium is a frm f fee wnership r lng-term leasehld f separate units r prtins f multiunit buildings that prvides fr frmal filing and recrding f a divided interest in real prperty. In cntrast t a PUD, a jint share in wnership f the cmmn area is part f the mrtgaged prperty, and therefre, cnstitutes a measure f the security backing the mrtgage lan. FHA's interest is therefre mre immediate and direct with respect t the cmmn areas f cndminiums than thse f PUDS. Befre perfrming the assignment, the appraiser must check with the lender t ascertain that the prject is n an apprved list maintained by the HOC r by a DE underwriter wh has perfrmed a spt cndminium apprval. The appraiser must check the URAR item indicating that the prperty is within a cndminium prject, and therefre, eligible fr FHA endrsement. A. DEFINITIONS Mrtgage: a lien cvering a fee interest r eligible leasehld interest in a ne-family unit in a prject, tgether with an undivided interest in the cmmn areas and facilities serving the prject. Family Unit: a ne-family unit including the undivided interest in the cmmn areas and facilities and such restricted cmmn areas and facilities as may be designated. Cmmn Areas and Facilities: areas that are fr the use and enjyment f the wners f family units lcated in the prject, including the land, rf, main walls, elevatrs, staircases, lbbies, halls, parking spaces and cmmunity and cmmercial facilities. Restricted r Limited Cmmn Areas and Facilities: areas and facilities restricted fr use by a particular family unit r number f family units. Prject: a structure r structures cntaining fur r mre units. Cnversin: the creatin f the cndminium as f the date when all f the dcuments necessary t create a cndminium regime have been recrded under state and/r lcal law. 9-2

87 Tenant: the ccupant named in the lease r rental agreement f a husing unit in a prject n the date when: the cndminium cnversin dcuments are prperly filed fr the prject, r n the date when the ccupants are ntified by management f intent t cnvert the prject t a cndminium, whichever is earlier. Bna fide Tenants' Organizatin: an assciatin frmed by the tenants t prmte their interest in a particular prject whse membership is pen t each tenant and whse requirements apply equally t each tenant. (9-1) Cndminium Fee (Assessment): the apprtinment f cmmn expenses that are t be charged t a unit wner in a manner t be determined in the declaratin r by-laws. The charge may include csts fr utilities n individual units and n cmmn use buildings, security requirements, salaries fr emplyees f the assciatin and repairs t cmmn facilities. B. APPROACH TO VALUE The apprach t value fr a single unit in a cndminium prject is similar t that fr ther hme mrtgage prgrams. As in ther hme mrtgage appraisals, value indicatins frm the Sales Cmparisn and Incme Capitalizatin Appraches are develped and cnsidered (see Chapter 4 f this Handbk). The cst apprach can nt be perfrmed fr a cndminium unit. 1. Sales Cmparisn Apprach The appraiser shuld btain sales data frm any ther units in the prject and frm ther cmpetitive cndminium prjects, including adjustments because f site factrs, such as: differences in views frm the unit prximity t recreatin areas (swimming pls, clubhuses, tennis curts, etc.) prximity t drs and the nuisance f incineratrs prximity t garbage chutes r refuse areas prximity t nisy pumps r biler rms Adjustments must als be made fr the fllwing: differences in physical imprvements within the dwelling that have been made by the wner-ccupant differences in preferences f purchasers between upper and lwer flrs and all ther site factrs 9-3

88 U.S. Department f Husing and Urban Develpment Special Attentin f: TRANSMITTAL Handbk N Directrs, Hme Ownership Centers Directrs, Prcessing and Underwriting Issued: June 24, 1999 Divisins, Hme Ownership Centers Direct Endrsement Lenders 1. This Transmits: Changes t Handbk , Valuatin Analysis fr Single Family One- t Fur- Unit Dwellings, dated July Explanatin f Changes: This handbk has been revised t crrect several minr errrs in this new handbk. Specifically, the wrd "lcatin" has been changed t "site" n several pages nted belw under Filing Instructins. In additin, in Sectin B-1, the percentage flr area used fr cmmercial purpses fllws these standards: - One stry building 25 % - Tw stry building 49 % - Three stry building 33 % This change crrects the reversal f the percentages fr tw and three stry buildings. 3. Handbk Cancellatins: Nne 4. Filing Instructins: Change "lcatin" t "site" n the fllwing pages: Page i Page 5-2 Page v Page 7-4 Page 2-1 Page 8-2 Page 2-2 Page 8-3 Page 2-4 Page 9-3 Page 2-5 Page A-9 Page 2-7 Page D-2 Page 2-8 Page D-24 Page 2-9 Page D-25 Page 2-12 Page D-34 Page 4-11 Page D-35

89 APPENDIX A: VALUATION OF OTHER PROPERTIES A-1 REAL ESTATE OWNED (REO) HUD's Real Estate Owned (REO) prperties are a result f paying a claim t a lending institutin and the lender transferring wnership f the prperty t HUD. Typically, REO prperties were wned by the lender because the brrwer defaulted n the mrtgage. The appraiser must crdinate a specific time fr a full site inspectin f the prperty with the prperty manager. Generally, REO prperty is secured with the utilities turned ff. Hwever, the appraiser shuld attempt t have the utilities turned n t examine all building systems during the appraisal. A. Appraiser Requirements Requirements fr appraisers wh perfrm REO appraisals are the same as fr appraisers f any ther prperty. An appraiser f REO prperty must be state licensed and be a current member f the FHA Register. B. Appraisal Requirements - "As-Is" Value REO prperties are t be appraised "as-is". The Dictinary f Real Estate Appraisal, third editin, defines "as-is" market value as fllws: "The value f specific wnership rights t an identified parcel f real estate as f the effective date f the appraisal; relates t that which physically exists and is legally permissible and excludes all assumptins cncerning hypthetical market cnditins r pssible reasning." The "as-is" value is the market value fr the prperty as it exists n the date f the appraisal. The appraisal shall cnsist f the Unifrm Residential Appraisal Reprt (URAR) and the Valuatin Cnditins (VC) frm. The appraiser shall indicate n the appraisal r an addendum t the appraisal if the prperty can be sld with FHA mrtgage insurance (meets FHA minimum prperty requirements) either (1) in its as-is cnditin withut repairs r (2) in its as-is cnditin with repairs csting $5,000 r less. If the prperty can be sld with FHA mrtgage insurance by making $5,000 r less in repairs, the appraiser shall prvide a list f the repairs and their estimated cst. If the prperty needs mre than $5,000 in repairs t make it eligible fr FHA mrtgage insurance, the appraiser needs nly t list the general areas f repairs and prvide a statement that such repairs will exceed $5,000. C. Effective Date f Value The effective date f value is the date when the appraiser perfrms the site visit fr the subject prperty. If anther date is used as the effective date, the appraiser must specifically indicate: the alternative date the date when the subject prperty was physically inspected A-1

90 (A-1) D. Scpe The appraiser must perfrm the cmplete appraisal prcess, which includes cnsidering all applicable appraches t value and develping apprpriate appraches identified in this Handbk. E. Purpse The purpse f the REO appraisal is t help establish the sales price fr the subject prperty. REO appraisals will estimate the "as-is" value f a freclsed prperty wned by HUD. F. Intended Use f Appraisal/Functin The intended use r functin f a REO appraisal is t prvide the 'as-is" value f freclsed prperty fr marketing and bidding purpses. Great reliance will be placed n the as-is value f the prperty fr future sale. The as-is value supprts FHA's sales price fr the dispsitin f the prperty. The extent f repairs needed t the prperty will determine if it is ffered fr sale with FHA-insured financing r withut insured financing. If the prperty meets minimum FHA prperty requirements withut repairs, r meets FHA minimum prperty requirements with $5,000 r less f repairs, the prperty will be ffered with FHA insured financing. If required repairs exceed $5,000, the prperty will be ffered withut Sectin 203(b) insured financing, but eligible fr Sectin 203k insured financing. G. Additinal Requirements The appraiser must value the subject prperty frm the infrmatin gathered and arrive at an estimated market value f the subject prperty based n the requirements detailed in Chapter 4- Valuatin Analysis-f this Handbk. Include all transactin data f the previus hmewner, date f that transactin and sale prices based n USPAP requirements. This prvides a benchmark r frame f reference fr the prperty and neighbrhd market cnditins. Fr prperties where the interir cannt be inspected because f adverse ccupants r ther reasns, estimate the value based n an exterir inspectin f the prperty. Use the Freddie Mac 704 frm, Secnd Mrtgage Prperty Value Analysis Reprt, in cnducting exterir estimates f value. Prepare a narrative reprt n the utside cnditin and the apparent maintenance f the prperty in cntrast t the neighbrhd prperties. Include the estimate f Value and include phtgraphs f the exterir, as well. A building sketch is required, but a flr plan r rm layut f the prperty is nt required. The appraiser must cnsider and nte the expsure perid and estimate hw lng the prperty is expected t remain n the market. The expsure perid differs frm the marketing perid. The expsure perid estimates the length f time the prperty interest wuld have been ffered n the market befre the effective date f the appraisal. The cncept f reasnable expsure encmpasses nt nly adequate, sufficient and reasnable time but als adequate, sufficient and reasnable effect. The Valuatin Analysis must be based upn a Reasnable Expsure Perid. A-2

91 When appraising REO prperties, the appraiser must adhere t all ther valuatin and appraisal requirements discussed in previus chapters. A-1.1 Appraches T Value A. Cst Apprach Generally, the Cst Apprach is nt develped fr REO prperties. If the Cst Apprach is justified, fllw the specificatins utlined in Chapter 4: Valuatin Analysis. The appraiser is required t quantify repair csts in depreciatin fr an "as-is" value. B. Sales Cmparisn Apprach Often, the Sales Cmparisn Apprach is the mst applicable apprach t estimate the market value f a REO prperty. Appraisers must utilize sales cmparables frm ther REO transactins frm HL)ID, the Department f Veterans Affairs, Fannie Mae, Freddie Mac, r a cnventinal lender, as lng as they include the fllwing requirements: in the subject neighbrhd r reasnable prximity cmparable prperty subject t reasnable adjustment sld with a willing buyer and seller expsed t the market fr a reasnable perid If cmparables such as these are nt available, regular market cmparables may then be used. D nt use distressed sales such as Sheriff Sales in the Sales Cmparisn Apprach. These sales d nt invlve a willing seller nr are they expsed t the market under nrmal cnditins. The resulting value indicatin derived frm the use f such sales is nt cnsistent with the definitin f market value. Always use the sales cmparisn apprach fr ne- and tw- unit prperties. This apprach relies n: the availability f sales data the vlume f transactins the mirrring f Sales Cmparisn Apprach the market the ability t bserve and reprt the mst recent market trends Data cnfirmed and develped under this apprach has direct applicatin t the ther appraches used and shuld be cnsidered therein. At least three cmparable sales must be used with this apprach. At all times, the appraiser must carry frth the assumptins and data frm the ther appraches and the VC frm in develping a value estimate by the Sales Cmparisn Apprach. A-3

92 C. Incme Apprach Generally, the Incme Apprach is nt develped fr ne- r tw-family REO prperties. If the market indicates that the Incme Apprach is justified, fllw the specificatins utlined in Sectin 5: Valuatin Analysis. Fr three- and fur-unit prperties, always use the incme apprach. A.1.2 Reprting Requirements An REO appraisal must be perfrmed in accrdance with the Unifrm Standards f Prfessinal Appraisal Practice (USPAP). Other reprting requirements are as fllws: With each appraisal, the appraiser must prvide a list f any buyer incentives that wuld enhance the marketability f the prperty t prvide an incentive t buy the prperty unrepaired as ppsed t repaired. Fr all prperty cnstructed befre 1978, the appraiser must cnditin the appraisal n the cmpletin f a lead-based paint test. Fr appraisals f vacant lts (land), cmplete Frm FW 68, Land Appraisal Reprt, r an equivalent frm. A-1.3 Recnciliatin The final analytical step in the valuatin prcess is t recncile value indicatrs. In this step, the appraiser must measure the strengths and weaknesses f each applicable apprach and develp this data int a single value estimate. A-2 APPRAISAL OF SINGLE FAMILY HOMES ON NATIVE AMERICAN LANDS Fr purpses f this appraisal guidebk, if a lender specifically needs an appraisal under HUD/FHA's Sectin 248 prgram n Tribal Trust land r fr HUD's Office f Native American Prgram (HUD/ONAP) Sectin 184 n Tribal Trust, alltted (which is als knwn as individual trust) and fee simple lands, these guidelines will apply. If the prperty is n alltted (r individual) trust r fee simple land lcated n Native American Reservatins and it will be mrtgaged under HUD/FHA's Sectin 203(b), the appraiser must use the basic appraisal methdlgy addressed in this handbk. Within designated Native American Reservatins, treaties and tribal laws have created a variety f wnership patterns. Sme parcels may be unrestricted fee simple, ther parcels restricted tribal trust r alltted trust land. The appraiser must be familiar with the different restrictins and develp a reasnable value fr the subject prperty. Fllwing are the general designatins. A. FEE SIMPLE UNRESTRICTED Fee simple unrestricted wnership is wnership real prperty which may be bught, sld and transferred between Native American r nn-native American purchasers withut review by the Tribe r Bureau f Indian Affairs, (BIA). Fr the HUD/ FHA Sectin 203(b) prgram, A-4

93 appraisals must cnfrm t all ther standard HUD appraisal plicies. Fr the HUD/ONAP Sectin 184 prgram, fee simple land n a reservatin, the prcedures utilized fr tribal trust and alltted trust may be fllwed. Restricted Trust Land is land held by an individual Indian r Tribe which is subject t Federal restrictin against alienatin r encumbrance. Befre any lien can be placed against restricted land, the transactin must be apprved by the Bureau f Indian Affairs (BIA). All HUD lans must cmply with this requirement and prvide evidence in the HUD lan file. Lenders are encuraged t make cntact with the apprpriate BIA and Tribal realty fficers early in the lan prcessing. B. TRIBAL TRUST Tribal trust lands are held in trust fr the tribe by the United States gvernment. Tribes may lease prtins f the tribal trust land fr the use f specific individuals, but wnership, thrugh the Federal trust, remains with the tribe. C. ALLOTTED (OR INDIVIDUAL) TRUST LAND Land wned by individual tribal members but held in trust by the United States gvernment. It is cmmn fr alltted trust lands t be wned by several individuals. If a prspective brrwer prpses t use all r a prtin f a fractinated prperty, all ther wners must indicate acceptance f this arrangement by becming parties t the mrtgage r subdividing the subject parcel ut t the individual fr undivided wnership. A-2.1 PROPERTY RIGHTS APPRAISED A. TRIBAL TRUST LAND HUD/FHA's Sectin 248 insures mrtgages and HUD/ONAP's Sectin 184 guarantees mrtgages n hmes that are lcated n Native American Tribal Trust Land. Fr these prperties, leased wnership f the underlying land remains with the tribe and will be subject t a lng-term 50 year grund lease (r a 25 year lease with a 25 year renewable term). Determining the value fr the leasehld estate is the purpse f the appraisal and the subsequent use is t prvide supprting dcumentatin fr a HUD insured r guaranteed mrtgage. Mrtgages n tribal trust sites must include an acceptable lease signed by the mrtgagr and Tribal authrity and apprved by the BIA. B. ALLOTTED (OR INDIVIDUAL) TRUST LAND Mrtgages n alltted (r individual) trust sites d nt invlve a lease, but a specific mrtgage rider is required. All HUD lans must have a Deed f Trust Rider attached apprving the mrtgage pursuant t 25 USC 483 (a) and apprved by the BIA. HUD/ONAP's Sectin 184 guarantees mrtgages n alltted trust land. Alltted trust land is held in trust by the federal gvernment fr individual Native Americans. The land is wned by the individual and value is given fr the land. When appraising alltted trust land fr Sectin 184, appraisers may fllw the methd given fr Tribal Trust Land. A-5

94 HUD/FHA insures mrtgages n hmes that are lcated n alltted trust land under Sectin 203(b). The appraiser can use this data fr backgrund infrmatin, but must use the typical appraisal practices fr FHA Sectin 203 addressed in Chapters 3 and 4 f this handbk. The appraiser must perfrm the cmplete appraisal prcess accrding t current USPAP and HUD/FHA standards. This includes cnsideratin f all applicable appraches t value and cmplete develpment f all applicable appraches, as identified herein A-2.2 APPROACHES TO VALUE The appraiser must be familiar with the different restrictins and develp the apprpriate value fr the subject prperty. The supply f cmparable sales and rental transactins vary by site and by tribes. Until sufficient sales exist n a reservatin r within the specific Native American area t prvide a reasnable sales cmparisn apprach fr determining the value f tribal trust leasehlds r alltted land sales, the appraiser must rely n ther value indicatrs. The appraisal prcess must be dcumented mre thrughly than a typical market appraisal. USPAP Standards #1 and # 2 are effective t allw the appraiser t "crrectly emply thse recgnized methds and techniques that are necessary t prduce a credible appraisal." And "in reprting the results f a real prperty appraisal an appraiser must cmmunicate each analysis, pinin and cnclusin in a manner that is nt misleading." An appraisal n trust land may rely mre n the cst apprach, r data develped frm ther tribes. HUD will accept the reprt if the appraiser has dcumented the search, infrmatin develped and cnclusins clearly fr the intended users t understand. A. Cst Apprach The cst apprach is ften the primary indicatin f value based n the unique nature f the reservatin setting. In cnjunctin with the cmpletin f this apprach n tribal trust sites, the value f the site as vacant des nt apply. On the cst apprach addenda t the URAR the value f the site is zer r a small leasehld value. if the land lease is at market and there was n upfrnt payment the lease-fee value is equivalent t the leasehld value, which is zer. This is the typical scenari and n value exists fr the underlying land. The appraiser shuld enter the statement "subject is n Tribal Trust Land with annual rent nt capitalized" in cmments. If a market exists and the land was purchased, the value is estimated via traditinal methds. 1. New Cnstructin Due t the flexibility allwed by law, HUD permits the inclusin f develpment csts fr new cnstructin, which can exceed market value, t be used in bth Sectin 248 and Sectin 184. Fllwing are instructins specific t new cnstructin n tribal lands. The basic appraisal methdlgy is addressed in Chapter 4 f this handbk. In additin t including the cst f water, septic, and any ther n-site csts in the cst apprach, fr lands within the reservatin, the appraiser may prvide an allwance fr ff-site develpment csts. The lesser f actual pr-rated csts r up t 10% f the cst f the cnstructin f the subject huse may be added fr ff-site infrastructure assciated with develpment f the subject lt. This plicy applies principally t new A-6

95 (A-2.2) cnstructin where such charges are assessed by tribally apprved entities such as husing entities r husing authrities, r agreements with ther federal r lcal gvernment bdies fr prviding pwer, utilities, sewer/water and/r rad cnstructin. The csts t bring utilities; including public water, sewer, electricity, and telephne represent significant develpment csts. The traditinal tract develpment f residential hmes may nt be a part f the lcal culture. Therefre, the utility csts t hk-up t any frm f a public system in a mre rural area can exceed lcal standards. In remte areas, the cnstructin csts in the Marshall & Swift guide r related cst manuals may have t be adjusted fr transprtatin, labr r ther csts nt included in the basic estimate. Architect fees are nt typically reflected in the base building csts. Due t special circumstances the nrmal alsite fr this fee may nt autmatically reflect the abve actual cst. The appraiser must prvide a supprting explanatin in the adjustments t the cnstructin csts. 2. Existing Cnstructin Where market sales are limited, HUD requires the cst apprach t be cmpleted n all tribal trust appraisals, including a credible estimate f depreciatin. B. Sales Cmparisn Apprach Native American cmmunities are develping ecnmies at varying rates and degrees. It is imprtant fr the lender and HUD t understand the ecnmic factrs which affect value. Therefre the appraiser must cmmunicate the lcal tribal husing market. The sales cmparisn apprach will generally be cmpleted, and in remte areas may invlve sales up t 18 mnths ld. Where n credible cmparables are available, a narrative justificatin that discusses the market, and prvides any sales, rental r vacancy infrmatin pertinent t the subject will be acceptable t supprt value develped frm the cst apprach. In additin t the typical data surces the appraiser may btain sales infrmatin frm the lcal tribal r Bureau f Indian Affairs (BIA) realty ffice. Sales frm ther reservatins within the regin may be cnsidered. Each situatin will have unique factrs and the appraiser shuld explain deviatins frm the sales cmparisn apprach instructins utlined in Chapter 4 f this Handbk. The rder f selectin preferences fr sales wuld depend n the type f land being appraised. Tribal Trust Leasehld sales (market sales between tribal members) Sales f alltted land trust between tribal members Fee Simple within the Reservatin (residual value f the imprvements by adjusting ut the land cntributin) Fee Simple prximate t the Reservatin Fr cmparable sales that include land value, an adjustment is required t back-ut the raw land value. This adjustment is required when cmparing a fee simple cmparable sale t a Native American trust sale transactin. A-7

96 Enter adjustments n the frm under "Other" and label as Raw Land Value," which is determined separately fr each f the cmparable sales. C. Incme Apprach The incme apprach is generally nt develped with regard t Native American Trust Land. If the prperty includes a rental unit(s), the appraiser must prvide an estimate f mnthly rent fr each unit and nte whether r nt the rent is limited t the tribal sub-market. If the appraiser determines that this apprach is justified, the appraiser shuld cmplete the incme apprach accrding t the specificatins utlined in Chapter 4 f this Handbk. A-2.3 Recnciliatin f Value The appraiser must determine the market value fr the restricted trust prperties frm the limited data available. Value determinatin n trust land is an exceptin t typical HUD/FHA instructins; value is nt limited t the lwer f cst r market. Where market infrmatin is limited, greater weight may be given t the replacement cst apprach. Dcument the decisin prcess and the value. A-2.4 HUD/FHA REQUIREMENTS On lans invlving restricted trust land, with either Sectin 184 r Sectin 248, HUD waives the requirement f a strict interpretatin f market value and will accept lans based n the abve market cst apprach. All ther HUD health, safety, access, and prperty cnditin issues must cnfrm t FHA requirements. The appraiser must indicate if the prperty is in need f, r in the prcess f receiving any repairs. Make apprpriate requirements fr repairs-t-be-cmpleted and appraise the prperty as repaired. The appraiser must indicate if the prperty cnfrms t the applicable Minimum Prperty Requirements f this Handbk. If it des nt, the appraiser must recmmend crrectin f the deficiency r rejectin f the lan and explain. Tribally wned and maintained streets and utilities are cnsidered publicly wned. Appraisers must require easements and a maintenance agreement fr nn-public, cmmn wnership situatins. HUD accepts tribal enfrcement f building cdes and inspectins t the extent they are standard and enfrced. At the pint tribal supprt is nt available, review and certificatin that the wrk cmplies with an apprpriate natinal standard must be cntracted ut t a licensed r certified specialist. Example, a tribe issues building permits, but has n prvisins fr inspectins. The lender/brrwer must cntract with a lender apprved qualified specialist such as an engineer, architect r inspectr. Inspectin/apprval by the Indian Health Service is acceptable fr individual r cmmunity water and sewer systems. The remaining ecnmic life must be estimated and reprted but des nt limit the mrtgage. The subject prperty must pssess sufficient remaining physical life t warrant a lng-term mrtgage. The mrtgage term may nt exceed the remaining physical life f the prperty. A-8

97 A. HUD/FHA Sectin 248 and HUD/ONAP Sectin 184 Requirements Fr bth Sectin 248 and Sectin 184 prgrams, the prperty must be free f hazards, nxius drs, grssly ffensive sights r excessive nises which might endanger the physical imprvements, affect the livability f the prperty, its marketability, r the health and safety f its ccupants. If any f these cnditins exist, the appraiser must recmmend crrectin f the prblem r rejectin f the lan and explain. Fr bth prgrams, the appraiser will make apprpriate requirements t crrect any bserved r ptential envirnmental prblems. Many reservatins have nt been mapped fr the 100-year fld plain. If the appraiser bserves a pssible fld plain prblem, they are t require fld insurance n existing prperties. The Underwriter may waive the fld insurance requirement if the brrwer r the tribe prvides an elevatin certificate frm a licensed engineer that the prperty is nt at risk frm flding. Nte that the lwest flr (including basement) fr new cnstructin must be at r abve the 100-year fld elevatin. B. REPORTING REQUIREMENTS The appraiser must reprt if an apprach was nt develped and insert the ratinale fr exclusin f the apprach. The appraiser must attach an addendum cmplete with the assumptins supprting the indicatin f value by the cst apprach. The cst apprach is recnciled t the ther values, if any, n the URAR. The appraiser will indicate any wrk requirements r VC pursuant t utstanding instructins. The DE underwriter/lender must assure acceptable cmpletin f any wrk requirements pursuant t existing instructins. A-2.5 INSTRUCTIONS FOR ASSISTED APPRAISAL PROCESSING IN APPRAISAL HIGH COST AREAS T accmmdate the special cnditins assciated with remte sites n Native American lands, the fllwing assisted appraisal prcess is allwed. The assigned appraisers may netwrk with lcal persnnel where the high cst f real estate appraisals is a cncern fr underwriting single family mrtgages in Native American cmmunities. T minimize this prblem, FHA and ONAP will allw the use f trained lcal persnnel t perfrm the inspectin, prvide current analysis f the lcal market, and draft the appraisal reprt. The reprt must be frwarded t the assigned appraiser wh win review the reprt, prvide additinal dcumentatin, sign the URAR and frward the reprt t the lender. Using the Assisted Appraisal Prcess is restricted t remte areas where licensed appraisers are nt readily available. It may be used when the cst f transprtatin and/r time increases the cst f the appraisal t twice the cst f typical appraisals in the lcal urban areas. The prcess must be mnitred and acceptable t the DE underwriter/lender. The assigned appraiser may use lcal subcntractrs wh: Have general real estate skills (cnstructin, lending, sales, management) acceptable t the appraiser (such as Husing Authrity staff, Tribal Designated Husing Entities (TDHE) staff r BIA realty persnnel, lcal real estate prfessinals). A-9

98 Must cmply with the Cnflict f Interest limitatins (have n persnal r financial interest with the buyers r sellers f the prperty). An appraiser wh signs a real prperty appraisal reprt prepared by anther, even under the label f "review appraiser" must accept full respnsibility fr the cntents f the reprt, USPAP Standard 2-5. The assigned appraiser is respnsible fr the entire appraisal and signs the URAR. The individual assisting in the reprt must dcument the extent f help prvided and certify n cnflict f interest exists in the certificatin. The assigned appraiser must be familiar with the Cmpetency Rule in the USPAP. This includes key issues such as the unique prperty rights cnveyed, the lcal market invlved and market cnditins. It is assumed the remte area markets will change slwly. If cnditins have changed, an updated analysis is required. The assigned appraiser assumes all respnsibility that the appraisal meets all HUD/FHA and ONAP prgram requirements. A-10

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110 APPENDIX B: SPECIAL PROGRAMS B-1 203(K) REHABILITATION HOME MORTGAGE INSURANCE The Sectin 203(k) prgram is HUD's primary prgram fr rehabilitating and repairing single-family prperties. A Sectin 203(k) mrtgage prvides financing fr the acquisitin and rehabilitatin cnstructin f a prperty. The mrtgage is funded by a HUD-apprved lender and insured by HUD/FHA. A Sectin 203(k) mrtgage may be used t perfrm the fllwing: Purchase a prperty and repair/renvate it. Purchase a dwelling n anther site, mve it nt a new fundatin and repair/renvate it. Refinance existing indebtedness and repair/renvate a prperty. Repair/renvate a presently wned prperty. The fllwing table summarizes which prperties are eligible under Sectin 203(k). Type f Prperty Eligibility Cndminiums Yes 2/ Mbile hmes Yes Cperatives N Nn-residential being cnverted t single family (1-4 unit) Yes Single family (ver 1 year ld) Yes A 203(k) mrtgage may be riginated n a "mixed use" residential prperty prvided that: The percentage flr area used fr cmmercial purpses fllws these standards: - One stry building 25% - Tw stry building 49% - Three stry building 33% The cmmercial use will nt affect the health and safety f the ccupants f the residential prperty 2/ Cndminiums are eligible nly if they meet the fllwing requirements: - FHA/VA apprved - Maximum lan des nt exceed 100% - Imprvements are nly within the unit walls - Cndminium is cmplete with n nging r anticipated additin f any units r cmmn areas - Unit wners have had cntrl f the cmmn area fr at least ne year - The cndminium assciatin has prf f hazard, liability and fld insurance cverage - Unit is wned fee simple - There are n restrictive cvenants r prvisins restricting cnveyance f the unit - A minimum f 90% f the units in the prject have been sld - 51% r greater f the units in the prject are wner ccupied - N single entity wns mre than 10% f the units in a prject with mre than 30 units. - N single entity wns mre than 20% f the units in a prject with less than 30 units. B-1

111 (B-1) The rehabilitatin funds will nly be used fr the residential functins f the dwelling and areas used t access the residential part f the prperty. A. ELIGIBLE IMPROVEMENTS A minimum f $5,000 must be used in part fr renvatin and/r repair f an existing prperty. Minr r csmetic repairs r new fixtures alne, such as stves and refrigeratrs, are nt acceptable. The repair r renvatin may include: making structural alteratins such as repair r replacement f structural damage, additins t structure and finished attics and/r basements eliminating health and safety hazards that wuld vilate HUD's Minimum Prperty Standards installing wells and/r septic systems and recnditining plumbing making changes fr imprved functins and mdernizatin making changes fr aesthetic appeal and eliminating bslescence repairing r adding rfing, gutters and dwnsputs making energy cnservatin imprvements landscaping, grading, repairing patis and terraces that imprve the prperty equal t the dllar amunt spent n the imprvements creating accessibility fr the handicapped B. INELIGIBLE IMPROVEMENTS Any luxury item and/r imprvement that des nt becme a permanent part f the subject prperty is nt eligible, including: additins r alteratins t supprt cmmercial use r t equip r refurbish space fr cmmercial use recreatinal r luxury imprvements, such as swimming pls, ht tubs, whirlpl baths and saunas barbecue pits, bath huses, tennis curts, satellite dishes r tree surgery C. BORROWER, PLAN REVIEWER AND APPRAISER The brrwer must have the fllwing items prepared befre an applicatin, review r appraisal can ccur: an existing plan f the structure a prpsed plan detailing where structural r planning changes are cntemplated inspectin reprts frm a qualified engineer r inspectin service denting the presence f rdents, dry rt r termites and evaluating the adequacy f the existing structural, heating, plumbing, electrical and rfing systems specificatins f repairs fr site imprvements, a plt plan denting the lcatin f the structure, walkways, drives and ther relevant details descriptin f materials (HUD Frm r similar frm) B-2

112 203k Cnsultant: The brrwer selects a HUD apprved 203(k) Cnsultant t d the fllwing: visit the site prepare wrk write-up that specifies a descriptin and cst f each wrk item review the architectural exhibits fr cmpliance with HUD's Minimum Prperty Standards inspect any f the prperty's health and safety items nted n the drawings In cmparing the cst estimates with thers prjects, the cnsultant can use R.S. Means & Cmpany Repair and Remdeling Cst Data Bk r The Hme-Tech Remdeling and Renvatin Cst Estimatr. When the cnsultant has reviewed the prperty and respective plans, an appraisal can be requested. The lender will hire the same r anther 203(k) Cnsultant t inspect the rehabilitatin during cnstructin and sign ff n all draw requests. Appraiser. The appraiser is required t perfrm an "as-repaired" appraisal and t reprt it n the URAR. When perfrming an "as-repaired" appraisal, appraise the subject prperty at its expected market value when the prpsed rehabilitatin and/r imprvements are cmplete. Als, a lender may request an "as-is" appraisal t be recrded n a separate URAR. Under an "as-is" appraisal, the subject prperty is appraised in its present cnditin t establish the value befre rehabilitatin. Repair requirements r VC cnditins are nt included in the "as is" valuatin. The appraiser must visit the prperty, review the architectural exhibits shwing the prpsed wrk and review the prpsal fr standard valuatin cnditins that may have been verlked. If cnditins exist that impact the safety and health f the ccupants, discuss these items with the plan reviewer t crrect them in the architectural exhibits. B-2 SECTION 255: HOME EQUITY CONVERSION MORTGAGES (REVERSE MORTGAGES) A Reverse Mrtgage allws a brrwer aged 62 and lder t brrw against the equity in a prperty that has limited utstanding debt. A subject prperty under this prgram must be a net fur-unit dwelling in which the mrtgagr ccupies ne f the units. The appraiser must perfrm the appraisal with the same standards and frms expected in an FHA single-family appraisal. It may be a unit in an apprved cndminium r Planned Unit Develpment (PUD). Manufactured hmes are eligible if the hme cmplies with utstanding FHA guidance. The same deficiencies and repair items must be nted n the URAR frms. In certain instances, the brrwer is nt required t treat any defective paint surfaces after clsing fr prperties built befre B-3

113 B-3 SECTION 223(E) Sectin 223(e) is a mrtgage insurance prgram fr prperties lcated in lder, declining urban areas. The prgram allws fr the acquisitin, repair and/r renvatin r cnstructin f a residential prperty. Under this prgram, FHA waives the requirement that the subject prperty have a remaining ecnmic life f at least five years if the prperty is in a reasnably viable lcatin where there is a need fr affrdable husing. Appraisal: The prperty must cmply with HUD's Minimum Prperty Requirements f, and the appraisal must dente any deficiencies n the VC frm. When cnducting an appraisal n a subject prperty eligible fr this prgram, the appraiser must determine the remaining ecnmic life by examining the pattern f recent changes in the adjacent sites' land use strategies that wuld be incmpatible with single-family use. If the remaining ecnmic life is less than five years, prepare a plan f the subject prperty denting the land use patterns surrunding it. The physical life f the prperty must be sufficient t permit a lng-term mrtgage. Under this prgram, the physical life f a prperty can be substituted fr the ecnmic life because f the special risk prvisins that cmpensates fr the ecnmic factrs that adversely affect the prperty. B-4 TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOAN PROGRAM Title I is tw-lan prgrams, ne fr prperty imprvements and ne fr the purchase f manufactured hmes and/r lts n which the manufactured hmes are t be placed. N appraisal is needed fr a prperty imprvement lan; hwever, an appraisal f any real prperty invlved in a manufactured hme is required r fr any existing hme. This wuld be: a manufactured hme lt lan the lt prtin f a cmbinatin lan fr the purchase f a lt and manufactured hme a used manufactured hme If a lan defaults, the lender repssessing the manufactured hme under the Unifrm Cmmercial Cde r thrugh judicial prcesses must request an N.A.D.A. appraisal. Appraisals f repssessed manufactured hmes shuld be made befre remval by the lender. B-5 SOLAR ENERGY T encurage the use f slar energy in hmes, HUD will insure a mrtgage up t 20 percent abve the maximum allwable insurable amunt in a gegraphical area if such increase is necessary t accunt fr the increased cst f the residence due t the installatin f a slar energy system which may nt exceed 20 percent f the value f the prperty. An eligible slar energy system is defined as any additin, alteratin, r imprvement t an existing r new structure which is designed t utilize wind r slar energy t reduce energy requirements btained frm ther surces. Active, passive and phtvltaic slar energy systems are permitted in this prgram, prvided they are accmpanied by peratinal 100 percent back-up cnventinal systems. B-4

114 The slar energy system's cntributin t value will be limited by its replacement cst r by its effect n the market price f the dwelling. In the event that market data is nt available t indicate the additinal amunt which wuld be paid fr a prperty cntaining a slar energy system, the amunt f increase wuld be the lesser f the actual cst f the slar system installed in the subject huse r 20 percent f the market value f the prperty. The difference in added value cntributed by the slar system in cmparisn t the cnventinal system must represent a reasnable prprtin f the ttal value f the prperty and may never exceed 20 percent f the market value f the prperty withut a slar energy system. A. Appraisal Prcedure The appraiser shall reflect in value the lcal market acceptance f slar heating equipment. Slar cllectrs must be lcated where they will be free frm natural r man made bstructins t the sun. 1. Slar Ht Water Systems Acceptability. When such systems are prpsed t be installed, they must cmply with the prvisins f Use f Materials Bulletin Number 100, Subject: HUD Building Prduct Standards and Certificatin Prgram fr Slar Water Heating Systems, issued August 15,1993. [Use f Materials Bulletin are available fr public inspectin during regular business hurs in the Office f Cnsumer and Regulatry Affairs, Department f Husing and Urban Develpment, Rm 9156,451 7'h Street S.W., Washingtn, DC They will sn be available n the HUD Web Page.] When such a system is already installed in an existing hme, the appraiser may request an inspectin by a qualified slar system inspectr/cntractr fr recmmendatins as t acceptability in peratins, maintenance and life expectancy. 2. Phtvltaic Systems [In Preparatin] 3. Limits t Value The slar heating r ht water system's cntributin t value will be limited by its replacement cst and by its effect n the market price f the dwelling. In estimating market value by cmparing a subject prperty that has a slar heating system t a recently sld cmparable prperty with a fssil fuel system nly, increased the sale price f the cmparable by the amunt typically paid in the market fr the slar heating system. 4. Temprary Prcedure Lack f Market Data. In the event that market data is nt available t indicate the additinal amunt which wuld be paid fr a prperty which des include slar heating r ht water system, then the amunt f the increase shall be the difference in cst between all heating equipment, including slar installed in the subject huse, less the cst f all heating equipment installed in the cmparable prperty withut a slar installatin. B-5

115 Hwever, in making this adjustment based n differences in cst, the appraiser shall cnsider the rati between the value added by a slar heating system and the value f the prperty with a cnventinal heating system nly, t ensure that the cntributin f a slar heating system t the ttal value represents a reasnable prprtin f the ttal value f the prperty. 5. Respnsibility fr Temprary Limit The HOC will cnsider the csts f acceptable slar energy systems fr hmes f several sizes, and will cnsider the market prices f typical hmes f these several sizes (withut slar energy systems) in rder t set a limit n the amunt which a slar energy system can add t the estimated value f the subject prperty. This limit shall be expressed as a percentage f the market value f the subject prperty (befre cnsideratin f the slar energy system) and this limit shall nt exceed 20 percent f the market value f the subject prperty (withut a slar energy system). B-6

116 APPENDIX C: VALUATION REFERENCES C-1 RULES OF ROUNDING A. PRECISION IN ROUNDING Precisin in calculating value estimates is critical t btaining cnsistent valuatins. Because the final estimate is a result f several calculatins, the degree f precisin used in the calculatins culd alter the final value. Therefre, it is imprtant t remain cnsistent thrughut the calculatins. Als, cnsistency in runding acrss appraisals is imprtant fr HUD t remain fair in determining insurance eligibility. Each value that HUD cnsiders must be the result f the same runding prcess s that values are nt altered. B. RULES OF ROUNDING Numbers are runded t the least precise number used in calculatins. Fr example, $55,156 x 3.2=$176,499, is runded t $180,000 because the least precise number cntained tw digits (3.2). The number, $176,499, was runded by cunting tw places t the right f the beginning f the number. Significant digits determine the precisin f the numbers used in calculatins. Significant numbers determine precisin because precisin is the clseness f the measurement, nt the degree f accuracy. The fllwing rules define significant numbers: Rules f Runding All nnzer digits are cunted. Zers that precede the first nnzer digit are nt cunted. Zers surrunded by nnzer digits are cunted. Zers that fllw the last nnzer digit are smetimes cunted. All zers at the end f a number are ignred when cunting significant digits. Examples 345 has three significant digits. 002 has ne significant digit and.0001 has ne significant digit has five significant digits cntains three significant digits because the zer is hlding a place and culd nly serve that functin. Hwever, 300 may have ne r three significant digits. Nte that 300 has three significant digits because the decimal hlds the precisin t the decimal place. 139,000 has three significant digits cunting frm left t right and ignring all trailing zers. Trailing zers after a decimal are cnsidered significant because it is assumed that a persn placed the trailing zers after a number t define the degree f precisin. C-1

117 C. RULES OF ROUNDING EXAMPLE The series f calculatins used when deriving the adjusted base cst and value under the cst apprach demnstrate where the rules f runding wuld apply Nt applying rules Rules f Runding Square ftage single family 1,800 1,800 hme Gd quality Class D $ N air cnditining (2.02) $ Height Adjustment fr 10 ft Flr area/ shape multiplier , Adjusted Base Cst Current Cst Multiplier Lcal Area Multiplier $153,073 $153,000 C-2

118 C-2 THE VALUATION PROCESS Definitin f Prblem Identificatin f Real Estate Identificatin f Prperty Rights t be Values Date f Value Estimate Use f Appraisal Definitin f Value PRELIMINARY ANALYSIS, DATA SELECTION AND COLLECTION General Scial Ecnmic Gvernmental Envirnmental Specific (Subject and Cmps) Sales Cst Incme/Expense Site Imprvements HIGHEST AND BEST USE ANALYSIS Land as thugh Vacant Prperty as Imprved LAND VALUE ESTIMATE Applicatin f the Three Appraches Sales Cmparisn Incme Capitalizatin Cst RECONCILIATION OF VALUE INDICATIONS AND FINAL VALUE ESTIMATE REPORT OF DEFINED VALUE C

119 APPENDIX D: COMPREHENSIVE VALUATION PACKAGE PROTOCOL D-1 RESIDENTIAL APPRAISAL REQUIREMENTS This sectin prvides specific instructins t cmplete the Unifrm Residential Appraisal Reprt (URAR). Sectin 1 - Subject This sectin prvides the factual data t identify the prperty and the parties t the appraisal prcess. Infrmatin shuld be supplied by the client wh engages the appraiser and ther qualified parties, thrugh public recrds and frm lcal gvernment recrds. Field Prtcl File Number Insert the FHA Case Number at the tp right crner f the page. Prperty Prvide the prperty street number and name, city, state and zip cde Address fr the prperty being appraised. Legal Enter the legal descriptin f the prperty and its cunty. If the Descriptin prperty address has nt clearly been identified, enter a legal descriptin. The fur types f legal descriptins are: lt and blck system, gedetail survey, gvernment survey system and metes and bunds system. Attach this infrmatin as an addendum if the space prvided is insufficient. Prperty Tax Enter the assessr's parcel number, tax year, the ttal amunt f real Infrmatin estate taxes, including all relevant taxes (schl district tax, fire district tax, etc.) and special assessment infrmatin. Fr newly cnstructed prperties that have nt been assessed, mark "N/A". Special assessments can include municipal bnd debt fr ff-site imprvements. The assessment can be expressed as a percentage f the assessr's pinin f market value. Ownership Enter the name f the current wner. The brrwer may nt be the Infrmatin current wner. Indicate wh ccupies the prperty: the wner, an ccupant (if there is nt an executed lease and wner des nt live there), a tenant r if the prperty is vacant. Indicate if it is a HUD REO (real estate wned) prperty, in which case the prperty was freclsed and HUD is the current wner. Prperty Select the apprpriate wnership rights fr the subject prperty as f the Rights date f appraisal. Fr HUD /VA mrtgages, indicate the prject type. Is Appraised it a Planned Unit Develpment r a Cndminium? If there are mnthly assciatin dues t cver cmmn prperty, enter this infrmatin in the HOA$/M. space. If the subject is a frm f cndminium wnership and maintained by an assciatin, reprt the mnthly fees in this space. D-1

120 Field Prtcl Neighbrhd A neighbrhd is defined as a grup f cmplementary uses. Use r Prject judgment in describing the bundaries. Prvide the factual infrmatin Name fr the site f the prperty. Include the name f the subdivisin, if applicable, r the lcal neighbrhd designatin. If the subject prperty is in a planned develpment, prvide the name f the develpment. Prvide map reference and census tract infrmatin. Fr prperties lcated in an area withut tract numbers, enter "N/ A." The map reference is ptinal. Census tract numbers have ten digits. T reach the US Census Bureau, call Mnday thrugh Friday frm 8:30 a.m. t 5:00 p.m. EST. Transactin Prvide the agreed-n sales price, (accepted ffer) date f sale, and an Data financial terms implicit in the ffer and the pending sales cntract. If unable t btain this infrmatin, dcument all effrts t btain it. If sales cncessins are indicated, cmment n any cnsequent effect n value. Lender/ Enter the name and address f the individual and firm wh engaged the Client appraisal. Generally, it is assumed that the lender is als the client. If the client is nt the same persn as the lender, include the client's name. If the client is the wner, enter "Client is Owner". Appraiser Enter the name and address f the appraisers) signing the certificatin f appraisal. Sectin 2 - Neighbrhd This sectin shuld reflect the area surrunding the subject prperty and all changes in the neighbrhd. The appraiser must inspect the site characteristics and surrunding prperties and make determinatins that will be incrprated int the valuatin f the subject prperty. In all instances, the appraiser must check the mst apprpriate bx fr each line and characteristic. Failure t nte cnditins that may adversely affect the value f the prperty is pr appraisal practice and may vilate the Unifrm Standards f Prfessinal Appraisal Practice. Field Prtcl Site Enter the type f area surrunding the subject prperty. When bth "urban" and declining" are checked, cnsider making a recmmendatin that the mrtgage encumbering the prperty be insured under Sectin 223(e). Built-up Enter the built-up percentage - the percentage f available land that has been imprved. Land such as a state park wuld nt be cnsidered available. Grwth Rate Enter the grwth rate. If many lts are available, the grwth rate may be rapid, stable r slw, but if the neighbrhd is fully develped, select the "stable" bx. D-2

121 Field Prtcl Prperty Check ff the bx describing the current trend in prperty values in the Values cmmunity. Cmparing huses that have been sld and resld in recent years is an effective way t determine the market trends. Appraisers wh use this methd, hwever, shuld make sure t factr in any adjustments made t the prperty between sales. Demand/ Mark the apprpriate demand /supply value. T determine the Supply equilibrium status f supply and demand in the neighbrhd, cmpare the number f huses sld t the number f huses listed fr sale in a recent time perid. The similarity r difference between the number f huses sld and listed, nt the abslute numbers, shuld determine the demand/supply level. Marketing Mark the apprpriate marketing time - the typical length f time a Time prperty similar t the subject prperty wuld have t stay n the market befre being sld at a price near its market value. Predminant Enter whether the neighbrhd's predminant ccupants are tenants r Occupancy hmewners. The transient nature assciated with tenants tends t decrease the prperty value f a given neighbrhd. Als, check ff the apprpriate percentage t indicate the percentage f the prperties in the neighbrhd that are vacant. Single Family Indicate the high and lw neighbrhd prices and ages, and what Husing wuld be the predminant value and age. Present Land Estimate each type f land usage in the neighbrhd. If there is n Use land in the neighbrhd with ne f the classificatins, enter a "0" r a -. If a prtin f the land cnsists f parks r ther unspecified classificatins, enter * and enter the actual percentages n the first line f the 'Neighbrhd Characteristics' sectin. Land Use Select whether the land use is nt likely, likely r in the prcess f Change changing. If a change is imminent r likely, detail what the future use will be. Changes in land use refer t cnversin frm ne develped parcel use t anther develped use and nt fr the develpment f previusly vacant land. Explain any impact n value resulting frm likely r in-prcess land use changes. Neighbrhd Prvide a descriptin f neighbrhd bundaries and characteristics. Bundaries Details regarding brdering street names and bth physical and and ecnmic characteristics typical f the neighbrhd win prvide Characteristics substantial details and understanding regarding neighbrhd cmpsitin. A site map indicating subject site and cmparables will als shed light n the neighbrhd. NOTE: Race and the racial cmpsitin f the neighbrhd are nt appraisal factrs. D-3

122 Field Prtcl Factrs that Discuss factrs that wuld attract residents r cause them t reject the Affect neighbrhd. These are typical factrs imprtant t discuss: Marketability Prximity t emplyment and amenities, including travel distance and time t lcal emplyment surces and cmmunity amenities Emplyment Stability, in terms f variety f emplyment pprtunities and industries Appeal t Market regarding the verall appeal f the neighbrhd as cmpared t cmpetitive neighbrhds in the same market Cnvenience t Shpping with respect t distance, time and required means f transprtatin Cnvenience t Schl in terms f the distance and time fr travel t schl Market Discuss market cnditins in the subject neighbrhd that may have an Cnditins effect n appraisal value. Sectin 3 - Planned Urban Develpment (PUD) The appraiser must cmplete this sectin if the subject prperty is a part f a Planned Unit Develpment. Otherwise, strike the sectin. A PUD is a prject that includes cmmn prperty and imprvements wned and maintained by an wners' assciatin fr the use and benefit f the individual units in the subdivisin. Field Prtcl Prject Select whether r nt the develper/builder is in cntrl f the Hme Infrmatin Owners' Assciatin (HOA). Number f Enter the apprximate ttal number f units in the subject prject and the Units in number f units currently fr sale. Subject Prject Cmmn Describe the cmmn areas and recreatinal facilities f the PUD, Elements/ including all areas accessible fr use by PUD wners. Recreatin Sectin 4 - Site This infrmatin prvides the descriptin f the land underlying the subject prperty. Insert factual infrmatin n each f the lines prvided and reprt the cnclusins as directed. Cnsider all aspects f the physical descriptin and recncile them in the estimate f market value. Field Prtcl Dimensins List all dimensins f the site. If the shape f the site is irregular, shw the bundary dimensins (85'X 150'X 195'X 250') and attach a sketch r legal descriptin f the site. Site Area Enter the site area in square feet r acres. Crner Lt Enter "YES" r "NO". D-4

123 Field Prtcl Zning Enter the zning type used by the lcal municipality and describe the Classificatin majrity f uses permitted. Fr example: "Residential-Single Family" r "Residential One t Fur Units" IMPORTANT: D nt use abbreviatins; they vary amng different cmmunities. Zning Determine whether the current use is in cmpliance with the zning Cmpliance rdinances. Check whether it is Legal, Legal Nn-Cnfrming, Illegal r N Zning. Use Histric," if applicable. If there is a nn-cnfrming use, enter "Nn-Cnfrming" and state whether it is a legal use that has been apprved by the lcal zning authrity. If the existing prperty des nt cmply with all f the current zning regulatins (use, lt size, imprvement size, ff street parking, etc.) but is accepted by the lcal zning authrity, enter "Legal Nn-Cnfrming". If the use is nt legal, the prperty is nt eligible fr HUD mrtgage insurance. Highest and This entry represents the highest and best use f the site in relatin t the Best Use neighbrhd and current market cnditins. If current use represents the highest and best use, check "present use". If it des nt, check "ther use" and prvide a detailed explanatin. Utilities Check either the "Public" bx r explain under "Other." Public utilities mean gvernmentally supplied and regulated. Public des nt include any cmmunity systems spnsred, wned r perated by the develper r a private cmpany nt subject t gvernment regulatin r financial assistance. Fr individual and/r cmmunity systems, check "Other". If the electricity is undergrund, please state this n the frm. Off-site Briefly describe the ff-site imprvements under "Type" and check Public Imprvements r Private. The appraiser must state the type f all ff-site imprvements - streets, curbs, gutters, sidewalks, alleys and streetlights - and indicate whether they are publicly r privately maintained. Fr example: "Street-Asphalt; Public." Public refers t an imprvement dedicated t and accepted by a unit f gvernment - nt including Hme Owner's Assciatins. Tpgraphy Enter whether the lt is level r slped. If the lt is slped, estimate the slpe degree. Size Enter descriptins such as typical, small r large. Cmpare the size f the structure t the typical size f cmpetitive prperties in the neighbrhd. Explain all deficiencies, significant inadequacies and ptential super adequacies and cnsider them in the estimate f value. Shape Enter the site cnfiguratin: triangular, square, rectangular r irregular. This entry must be cnsistent with the dimensins prvided n the Dimensins Field. D-5

124 Field Prtcl Drainage Enter whether Adequate r Inadequate. If Inadequate, be sure t explain and make requirement fr crrectin n the VC frm. Explain all deficiencies that d nt require repair and cnsider them in the estimate f value. View Briefly describe the view frm the prperty. Identify a view with a significant psitive r negative influence n the value. Include a phtgraph if feasible. Landscaping Enter whether adequate r inadequate, relative t neighbrhd. Explain all inadequacies and super adequacies and cnsider them in the estimate f value. Fr new cnstructin, include a descriptin f any landscaping included in the sale price. Driveway Enter surface type such as cncrete, asphalt r gravel. Surface An all-weather surface is required. If it des nt exist, mark it as a repair requirement n the VC. Explain all deficiencies that d nt require repair (extreme slpe, etc.) and cnsider them in the estimate f value. Apparent Describe any apparent easements. Cnsider easements affecting the Easements functinal utility f the prperty in the cnclusins f bth the highest and best use and market value. If an easement adversely affects the subject prperty, nte the effect in the Adverse Cnditins field. Cnsider surface, sub-surface and verhead easements. FEMA Fld FEMA (Federal Emergency Management Agency) is respnsible fr Hazard Area mapping fld hazard areas. If any f the imprvements n the prperty are within a Special Fld Hazard Area, mark "YES". Otherwise, mark NO". Attach a cpy f the fld map panel fr prperties lcated within fld plains. FEMA Zne If the prperty is in a FEMA Fld Hazard Area, enter the FEMA Zne and map date. Only prperties within Special Fld Hazard Areas, such as znes "A" and "V", require fld insurance. Znes "B" and "C" d nt. FEMA Map Enter the FEMA Map number and page number. If it is nt shwn n Number any map, enter "Nt n FEMA Maps." Cmments Enter any cmments related t the site. Fr example, discuss apparent adverse easements, encrachments, special assessments, slide areas, illegal r nn-cnfrming zning use, etc. Discuss the bservatins with direct relatinship t value and cnsider them in the final estimate f value. Sectin 5 - Descriptin f Imprvements This sectin describes the subject imprvements. Enter factual infrmatin n each f the lines prvided and reprt the cnclusins. Cnsider all aspects f the physical descriptin and recncile them in the estimate f market value. D-6

125 General Descriptin Field Prtcl Number f Enter the number f units being valued. The URAR is designed fr 1 t 4 Units units. Otherwise, use the multi-family frm. Number f Enter the number f stries abve grade, including half stries. D nt Stries include the basement. Type Fill in the Type, "Det" (Detached), "Att" (Attached), "S/D" (Semi- (Detached/ Detached) r "R" (Rw). Attached) Design (Style) Enter a brief descriptin f the huse design style using histrical r cntemprary fashin. Fr example: Cape Cd, bi-level, split level, split fyer, twn huse, etc. D nt use builder's mdel name. Avid generic descriptins such as Traditinal r Cnventinal. Existing/ Enter "E" (existing), "P" (prpsed) r "UC" (under cnstructin). A "P" Prpsed r "UC" requires plans and specificatins fr the appraiser t review. If Rehabilitatin, enter "REHAB" instead f "E r "P. Age (Years) Enter the actual age, date f cmpletin f the cnstructin. Cnstructin recrds may be helpful if available. If the prperty is less than tw years ld, include bth the mnth and year cmpleted. If it is ver tw years ld, insert the cmpleted year nly. Effective Age Enter the effective age f the site. A range is acceptable. The effective age (Years) reflects the cnditin f the prperty relative t similar cmpetitive prperties. The effective age may be greater than, less than r equal t the actual age. Nte any significant difference between the actual and effective ages and explain in the Cmments sectin. Exterir Descriptin The appraiser must address all visible deficiencies. Deferred maintenance and physical bslescence must be cnsidered in the valuatin prcess. Field Prtcl Fundatin Specify the type f material used fr the fundatin: pured cncrete, cncrete blck, wd, etc. Exterir Walls Enter the type f cnstructin material: aluminum, wd siding, brick veneer, prcelain, lg, stucc, etc. If a cmbinatin f materials, shw the predminant prtin first. Rf Surface Enter material type used fr rf surface: cmpsitin, wd, slate, tile, etc. Gutters and Enter type: galvanized, aluminum, wd r plastic. Dwnsputs If partial, state the site. D-7

126 Field Prtcl Windw Type Describe the type: duble-hung, casement r siding. Als, identify the windw frame material: wd, aluminum, steel, vinyl, etc. Strm/Screens State if there are strm screens r nt. Enter "YES", "NO" r "PARTIAL". Manufactured Enter manufactured hme (MH) r mdular (MOD), r answer "NO" if Huse neither. A manufactured mbile hme must have the seal that signifies cmpliance with the Federal Manufactured Hme Cnstructin and Safety Standards. Fundatin The appraiser must address all visible deficiencies and may require a recmmendatin fr an inspectin. Cnsider deferred maintenance and physical bslescence in the valuatin prcess. This statement links t the VC reprt, the valuatin and the need fr a full inspectin. Field Prtcl Slab Enter "YES" r "NO". Indicate its percentage f ttal fundatin. Crawl Space Enter "YES" r "NO". If partial, include percentage f flr area. Indicate its percentage f ttal fundatin. Basement Enter "Full", "Partial" r "Nne". Indicate its percentage f ttal fundatin. Sump Pump Enter "YES" r "NO". Dampness Enter "YES" r "NO". If damp, make requirement fr crrectin in the VC segment. Settlement Enter "YES" r "NO". Prvide a detailed explanatin and check fr cracks. Infestatin Enter "YES" r "NONE APPARENT". Lk fr evidence f any type f insects and related damage. If there is any, require insect infestatin inspectin in the VC segment. Basement The appraiser is required t inspect the basement. Address all visible deficiencies which may require a recmmendatin fr an inspectin. Cnsider deferred maintenance and physical bslescence in the valuatin prcess. This statement links t the VC reprt, the valuatin and the need fr a full inspectin. Field Prtcl Area Sq. Feet Enter square feet f basement area. % Finished Enter the percentage f basement square ftage (figure abve) that is finished. This is a percentage f ttal basement area that is finished, nt a percentage f the grund flr area. Ceiling Enter material type: drywall, lath and plaster r celtex ceiling panels. Walls Enter material type: drywall, wd panel r cinder blck. Flr Enter flr type: asphalt, tile r cncrete. Cmment if any part is earth. Outside Entry Enter "YES" r "NO". If "YES", use blank line belw t describe what type f entry exists. D-8

127 Insulatin If access is available, the appraiser must inspect the fllwing cmpnents and nte the bservatins. Nte all irregularities in the type r presence f insulatin in the Cmments sectin Field Prtcl Rf Make every effrt t determine if insulatin is present and the type. Enter R-factr r shw depth and site. If the type cannt be determined, enter "Unknwn". D nt guess. Cmment whether the insulatin is (G)d, (A)verage, (F)air, (P)r r (U)ndetermined. Ceiling Make every effrt t determine the type. Enter R-factr r shw depth and site. If the type cannt be determined, enter "Unknwn". D nt guess. Cmment whether the insulatin is (G)d, (A)verage, (F)air, (P)r r (U)ndetermined. Walls Make every effrt t determine the type. Enter R-factr r shw depth and site. If the type cannt be determined, enter "Unknwn". D nt guess. Cmment whether the insulatin is (G)d, (A)verage, (F)air, (P)r r (U)ndetermined. Flr Make every effrt t determine the type. Enter R-factr r shw depth and site. If the type cannt be determined, enter "Unknwn". D nt guess. Cmment whether the insulatin is (G)d, (A)verage, (F)air, (P)r r (U)ndetermined. Nne Check this line if there is n insulatin anywhere in the huse. Unknwn Check this line if unable t determine the presence f insulatin. Rm List Field (General Infrmatin) Prtcl Rm Grid Enter the apprpriate square ftage fr each designated rm area. Cmments abut rm design and cunt shuld reflect lcal custm. A dining area built as an L- shape ff the kitchen may r may nt be cnsidered a rm depending n the size. T determine whether ne r tw rms shuld be cunted, hypthetically insert a wall t separate the tw areas that have been built as ne: If the residents can use the resulting tw rms with the same r mre utility withut increased incnvenience, cunt the rm as tw. If the hypthetical wall wuld result in a lack f utility and increased incnvenience, cunt the rm as ne. D-9

128 This represents a hypthetical cnditin that must be reprted in accrdance with USAP. The rm cunt typically includes a living rm (LR), dining rm (DR), kitchen (KT), den (DN), recreatin rm (REC) and ne r mre bedrms (BR). Typically, the fyer, bath and laundry rm are nt cunted as rms. A rm is a livable area with a specific use. The fllwing definitins and terms may be useful as a guide: Basement: generally, cmpletely belw the grade. (D nt cunt the basement in the finished grss living area at the grade level. Insert the size f the basement - The infrmatin must be cnsistent with the descriptin in the Basement sectin.) Fyer: the entrance hall f a huse Level 1: includes all finished living areas at grade level Level 2: includes all finished living areas abve the first level Field Prtcl Finished Area T cmplete this sectin, enter the ttal number f each rm type at each Abve Grade level. DO NOT enter the dimensins. Cntains Enter ttal number f rms, bedrms, baths and square feet f Grss Living Area (abve grade). Attach a building sketch shwing the Grss Living Area Abve Grade, including all exterir dimensins f the huse, patis, prches, garages, breezeways and ther ffsets. State cvered" r "uncvered" t indicate a rf r n rf (such as ver a pati). Interir Materials/Cnditin Enter the types f Materials and the Cnditin f the Materials (Gd, Average, Fair, and Pr). Make every effrt t describe accurately and explain "Fair" and "Pr" rating n Line 103. The rating must relate t the habitability f the huse given lcal standards. Field Prtcl Flrs Enter flr type - tile, hardwd, carpet - and nte the cnditin. Walls Enter type f walls - plaster, drywall, paneled - and nte the cnditin. Trim/Finish Enter type f mlding - wd, metal, vinyl - and nte the cnditin. Bath Flr Enter flr type - ceramic tile, vinyl, carpet. and nte the cnditin. Bath Wainsct Enter type that prtects walls frm misture - ceramic tile, fiberglass, etc. - and nte the cnditin. Drs Enter type - wd, metal, etc. - and nte the cnditin. D-10

129 Heating Field Prtcl Type Enter type f heating system: ht water, steam, frced warm air, gravity warm air r radiant. Fuel Enter type f fuel used: cal, gas, il r electric. Cnditin Enter cnditin f system. Fr example, enter Gd, Average, Fair r Pr. If Fair r Pr rating, describe in Cmments sectin. Cling Field Central Other Cnditin Prtcl Enter "YES" r "NO" t signify the status f central air-cnditining in the huse. Describe any ther permanent means f cling in the huse, except fr central air cnditining: permanently affixed fans, zned air-cnditining, etc. Describe any adverse r irregular cnditins f the cling system in Cmments sectin. Kitchen Equipment Make an entry [X] in the bxes t indicate that these items exist. An entry in a bx means that the item was cnsidered part f the real estate and is included in the value. If an item is persnal prperty, put a "P" in the bx and d nt include it in the estimate f value. Treat nnfunctining equipment as existing, but as deferred maintenance in the valuatin prcess. Field Refrigeratr Range/Oven Dispsal Dishwasher Fan/Hd Micrwave Washer/Dryer Prtcl Enter "X" if this item exists. Enter "P" if persnal prperty. Enter "X" if this item exists. Enter "P" if persnal prperty. Enter "X" if this item exists. Enter "P" if persnal prperty. Enter "X" if this item exists. Enter "P" if persnal prperty. Enter "X" if this item exists. Enter "P" if persnal prperty. Enter "X" if this item exists. Enter "P" if persnal prperty. Enter "X" if this item exists. Enter "P" if persnal prperty. Attic Describe any additinal space - an attic, rm abve the garage, etc. - in terms f hw it can actually be used. The essential questin is whether it can be included in the abve-grade living area. State the means f access and if it is heated and finished. Enter "X" if any f these items exist. Field Nne Stairs Drp Stair Prtcl Enter X" if nne f the fllwing items exist. Enter "X" if this item exists. Enter "X" if this item exists. D-11

130 Field Scuttle Flr Heated Finished Amenities Field Prtcl Enter "X" if this item exists. Enter "X" if this item exists. Enter "X" if this item exists. Enter X" if the attic is finished. Prtcl Number Of Enter "X" if this amenity exists and the Prvide a specific number, if mre Fireplaces than ne. Pati Enter "X" if this amenity exists. Deck Enter "X" if this amenity exists. Prch Enter "X" if this amenity exists. Fence Enter "X" if this amenity exists. Pl Enter "X" if this amenity exists. Specify whether in-grund r abve-grund. Abve-grund pls are typically cnsidered persnal prperty and are nt included in the value. Car Strage Field Prtcl Nne If the prperty des nt have a garage, carprt r driveway, check "NONE". Garage If there is a garage, designate whether it is "Attached", 'Detached" r "Built-in" and indicate n the crrespnding line the number f cars that may be parked. If there is a carprt, enter the number f cars n the crrespnding line. Als indicate whether it is attached t r detached frm the hme. If there is n garage r carprt, but there is a driveway, state "YES" and enter the number f cars that can be reasnably parked in the driveway. Cmments The cmpletin f this sectin is critical t the estimate f market value. The appraiser must discuss all adverse cnditins and bserved physical and functinal deficiencies nted abve. If necessary, attach additinal discussin in the addendum. Field Prtcl Additinal Enter any additinal features such as a pl size, special energy-efficient Features items, special fireplace features, ther features nt shwn abve r any ther cmments. Please elabrate n any special r unusual aspects f items. D-12

131 Field Prtcl Cnditin f Describe any physical, functinal r external depreciatin nted at the the prperty. Imprvements Prvide a cnclusin as t the verall cnditin f the imprvements that is supprted by the previus descriptive sectins. Discuss any deficiencies r ntable bservatins n attached pages, if necessary. Adverse List any adverse envirnmental cnditins, including hazardus wastes, Envirnmental txic substances and thers. Cnditins If the prperty was built befre 1978 and there is evidence f cracking, chipping, peeling r lse paint, make this statement n lead-based paint: "Prperty built befre 1978, lead-based paint crrective measures are required." Als, check the apprpriate lead-based paint requirement in the VC Frm. Sectin 6 - Appraches t Value Cst Apprach If the subject prperty is new cnstructin r the cst apprach is recgnized in the market as a basis fr pricing, the appraiser must cmplete the cst apprach and attach the fllwing cnclusins: land value cst new estimates f depreciatin (curable and incurable) an estimate f value Cnsider the value by the cst apprach in the recnciliatin f market value. Sales Cmparisn Analysis In selecting cmparables, use the bracketing methd. Ideally, ne f the cmparables shuld be a little larger (200 sq. ft. t 300 sq. ft.); anther a little smaller; and the third shuld be apprximately the same size - generally within a hundred square feet f the subject. If this is nt pssible, the appraiser shuld explain why. DO NOT SELECT COMPARABLES BY SALES PRICE. All adjustments must be extracted frm the market. D nt make an adjustment unless it has a material effect n value. Explain the reasn fr making any adjustments fr site, site/view r design/appeal. Avid using three builder sales frm the same subdivisin, if pssible. In sme areas f the cuntry it is custmary fr the builder r seller t pay clsing csts fr the buyer and include them in the sales price f the prperty. In ther areas, this may ccur ccasinally r nt at all. In thse rare market areas where clsing csts are the respnsibility f the seller and are always paid by the seller and included in the sales price, the appraiser must nte this under "Special Limiting Cnditins f the Appraisal" in the Recnciliatin Blck. D-13

132 D nt use as market data sales that are nt verified and adjusted t reflect the terms and cnditins f sale. Always select the mst similar cmparables. Use lder sales nly if mre recent nes are nt available and be sure t explain in the "Cmments" sectin why any cmparable ver six mnths ld was used. The appraiser must always use sales within ne year f the valuatin date. The value factrs f Site, Site, View, Design/Appeal, Quality f Cnstructin, Age, Cnditin and Functinal Utility are all subjective factrs that require subjective adjustments. Be careful that adjustments are reasnable and nt excessive. If a prperty is vervalued, there is a high prbability that the reasn can be traced t an excessive adjustment smewhere in this sectin. Make adjustments nly if the dissimilarity has a nticeable effect n the value. Small differences d nt usually require adjustments. Always explain subjective adjustments. Transactin Data The appraiser must verify the fllwing infrmatin with ne f the fllwing surces: buyer seller brker ther parties invlved and fully knwledgeable abut the sale available public recrds Enter factual data in each line. Befre making adjusi3nents, the appraiser must be knwledgeable and must have inspected the sale prperty. Field Prtcl Address Enter the address that can be used t lcate each prperty. Enter cmmunity, if needed, t identify prperty. Fr rural prperties, list site by rad name, nearest intersectin and side rad. Prximity t Enter prximity f straight-line distance in miles; fr example, "ne tenth Subject f a mile west f subject". If cmparable distance frm the subject is mre than a generally accepted distance, be sure t explain why the sale is applicable in the "Cmments" sectin. Sales Price Enter ttal amunt paid by buyer, including extra cst. Price/Grss Enter price per square ft fr living area abve grade. Livable Area Data and/r Enter data and verificatin surce name(s) r thers: tax stamps, MLS, etc. Verificatin This is the data surce fr the price and prperty infrmatin. Surce(s) Als shw type f financing such as Cnventinal, FHA r VA. Adjustments t Sales Price Adjustments are made t the prices f the sale prperties fr price-influencing dissimilarities between each sale and the subject prperty. Nt all dissimilarities require adjustment because nt all dissimilarities achieve price differentials in the market. All adjustments must be supprted by the actins f the market. D-14

133 Value Adjustments Fie1d Prtcl Value Fr each adjustment item, enter the descriptin f the adjustment and Adjustments whether it is an upward r dwnward adjustment. Sales r Enter adjustment fr sales cncessins, if needed. Be sure t explain in Financing "Cmments" sectin and use Addendum if apprpriate. Analyze all sales Cncessins n a cash equivalent basis. Date f State the date f sale and enter the adjustment fr changes in market Sale/Time cnditins. Site Enter "Gd", "Average" r "Fair", when cmpared t the subject and using the same standard as the subject. An adjustment fr site in the same neighbrhd is seldm justified. Leasehld/Fee State whether the prperty was sld as fee simple r as a Leasehld Simple Estate. An adjustment is required if the estate differs frm the rights appraised fr the subject prperty, and the difference is recgnized by the lcal market. Site Enter the size f the lt. Make adjustments nly fr measurable differences. Small differences in lt sizes d nt usually call fr an adjustment if the size is typical. If necessary, cnsider the pssibility f excess r surplus land. View Make adjustments nly if the view is superir r inferir t the subject. A quality rating f (G)d, (F)air r (P)r is given here. If the subject has a superir view and adjustments are made, a phtgraph wuld be helpful. Design and Enter the style accrding t a descriptin used by lcal custm and shw Appeal appeal as (G)d, (F)air r (P)r. Adjustments are necessary fr differences between the sale and the subject prperty. Quality f Enter "Gd", "Average" r "Fair" and the cnstructin type: aluminum Cnstructin siding, wd siding, brick, etc. If a cmbinatin, shw the predminant material first, such as brick/frame if it is mstly brick. Adjustments may als be warranted fr interir cnstructin quality and shuld be explained and justified. Age/Cnditin Enter the age f the subject and each cmparable sale. Enter the cnditin f the subject and cmparable The adjustment fr cnditin is typically required. Cnsider an adjustment in either age r cnditin. There is the tendency t duplicate the required adjustment when applied in each categry. Cnsider any assumed repairs t the structure and the rf when determining the need fr adjustments t the sales. Cnsider the cnditins reprted n the VC Frm in making any adjustments. D-15

134 Field Prtcl Abve Grade Enter rm cunt, cnsistent with the descriptin f imprvements n the Rm Cunt frnt f the URAR - Cmmnly, three adjustments may be entered: - The first may be an adjustment fr "expendable space", such as a bath. A deficiency in the number f baths shuld be adjusted first. - The secnd is a separate adjustment fr a difference in square feet. - The third is an adjustment fr rm cunt. These can be individual r separate adjustments that have been cmbined. All shuld be extracted frm the market. But rm cunt and bath adjustments shuld be n ne line and square ft adjustment fr size n anther line. Explain any prperty that has an adjustment in bth square feet and rm cunt. Break dwn cmbinatin adjustments in the "Cmments" sectin. Grss Living Enter the ttal square ftage f the abve grade living areas. Area Basement & Enter the type f imprvements in the basement: bedrm, recreatin Finished Rms rm, laundry, etc. Include ther fully r partially belw grade Belw Grade imprvements fund in the subject prperty r cmparables. Make apprpriate adjustments t reflect differences between the cmparables and the subject prperty. Explain any special features. Shw number f square feet f finished area. Functinal Enter "Equal", "Superir" r "Inferir" as a ttal f the items rated in the Utility Imprvement Analysis cmpared t the subject. Use the "Cmments" sectin frequently and explain special features. The categry f functinal utility typically is the place t deduct fr functinal bslescence bserved in the subject, recrded n Page 1 and nt fund in the cmparables. Extract dllar adjustments frm the market. Fr example, a pr flr design that includes tw bedrms s that the entrance t ne is gained by passing thrugh the ther typically requires a negative adjustment fr functinal bslescence. In such a case, the secnd bedrm wuld nt be cunted as a bedrm. Heating/ Enter an adjustment fr differences in building systems r cnditin. Cling Energy Efficient Enter an adjustment fr any energy efficient items: strm windws and Items drs, slar installatins, replacement windws, etc. Garage/ Enter an adjustment fr car strage. Calculate adjustments in accrdance Carprt with market acceptance f carprt value versus garage and size (ne car, tw cars, etc.). Prch, Pati, Enter an adjustment fr these features. Base any adjustments n lcal Deck, market expectatins. If a lump sum adjustment is ffered fr multiple Fireplace(s), etc. amenities, break it dwn in the "Cmment" sectin. D-16

135 Field Prtcl Fence, Pl, etc. Enter apprpriate adjustments. Fr example, a pl lcated in an area that expects pls might bring a dllar premium in cmparisn t a cmparable withut a pl. Net Adjusted Check either [+] r [-] bx t indicate if the ttal net adjustments will (Ttal) increase r decrease the value and nte by hw much. If any adjustment is excessive, review the cmparables t determine if the best nes were selected. If the ttal adjustments appear excessive in relatin t the sale price; the appraiser shuld reexamine the cmparability f that sale. Explain any adjustment that appears t be excessive. Adjusted Sale Ttal all f the adjustments and add them t r subtract them frm the Price f sales price f each cmparable. Generally, adjustments shuld nt exceed Cmparable 10% fr line items, 15% fr net adjustments and 25% fr grss adjustments. Cmments n Please cmment n the Sales Cmparisn sectin, including the subject Sales prperty's cmpatibility t the neighbrhd, specific characteristics f Cmparisn the sales that affect the adjustment prcess, etc. The analysis must be reprted and the effect cncluded. Date, Price and This is in accrdance with USPAP standards, which requires the appraiser Data fr Prir t cnsider and analyze any prir sales f the prperty being appraised Sales Within and the cmparables that ccurred within ne year f the date f One Year f appraisal. Appraisal Further Prvide an analysis f any current agreement f sale, ptin r listing f Analysis the subject prperty and analysis f any prir sales f subject and cmparables within ne year f the date f appraisal. Indicated Value Upn the basis f the adjusted data, enter the indicated value f the by Sales subject. Cmparisn DO NOT arbitrarily select the adjusted sales price that is midway between Apprach the lwest and highest adjusted sales price. DO NOT average the cmparable sale prices t arrive at an Indicated Value. The final estimate f market value must be supprted by the actins f the market. Incme Apprach In a single-family residential prperty, the incme apprach is generally nt recgnized as a basis fr buying by the market. The apprach typically prvides minimal applicability in the estimate f market value. If a three- r fur-unit building is being appraised, the appraiser has attached the valuatin by the incme apprach t the addenda f this reprt. When used, shw the grss rent frm each f the cmparables at the bttm f the frm under "Final Recnciliatin." D-17

136 Fr example: Cmp. #1 Grss Rent = $1,000 (GRM 110); Cmp. #2 Grss Rent = $1,200 (GRM 108),... T determine the apprpriate grss rent multiplier t use, fllw the same prcedure as in the market apprach. Select a GRM based upn cmparable rentals. Be sure t explain the infrmatin. The appraiser must als analyze and reprt n current market cnditins and trends that will affect prjected incme r the absrptin perid t the extent these cnditins affect the value f the subject prperty. This infrmatin shuld be cnsistent with the neighbrhd infrmatin n the frnt f the URAR. Field Prtcl Indicated Select and enter the indicated value by the incme apprach. Value by Incme Apprach Sectin 7 - Recnciliatin The appraiser must cnsider all apprpriate appraches and all infrmatin relevant t the subject prperty and the market cnditins in the estimate f market value. Field Prtcl Market Value Check the bx marked "as is" r "subject t cmpletin per plans and "As Is" r specificatins". "Subject t Use the "as is" value nly if there are n repairs required r if the prperty Cmpletin is being rejected. If the prperty is being rejected, the appraiser must per Plans" prvide an "as is" value. The value "subject t cmpletin per plans and specificatins" must be cnsistent with the expected date f cmpletin f the cnstructin. State any assumptins that affect the premise f cmpletin and the resulting value. Market Value, The value "subject t repairs, alteratins, inspectins r cnditins listed" "Subject t must reflect cnsistency between the develpment f the appraches t Repairs" value and the final estimate f value. The appraisal is cmpleted "as repaired". The appraiser must indicate the extent f repairs and als nte this in the Valuatin Cnditin Frm f the appraisal. Only required repairs will be cmpleted, and the market value must reflect the existing physical characteristics. Reprt any special circumstances r unique agreements and cnsider them in the reprted value estimate. D-18

137 Field Prtcl Cnditins f In additin t any cmments that the appraiser wants t make, the Appraisal appraiser shuld enter taxes and insurance expenses and cndminium r PUD cmmn expenses as apprpriate. The appraiser must als enter any Limiting Cnditins. Final This entry shuld cntain the appraiser's reasning fr arriving at the Recnciliatin final value. Date f Value Enter the date when the prperty was inspected. Appraiser The appraiser wh perfrmed the appraisal must sign the frm. Signature Appraiser The appraiser wh perfrmed the appraisal must print his r her name. Name Date Reprt Enter the date when the appraiser signed the reprt. Signed State Enter the apprpriate and valid State Certificatin number. Certificatin State License Enter the apprpriate and valid State License number and state. Supervisry The FHA Register appraiser must use this prtin f the frm fr all Appraiser required infrmatin and is always required t inspect the prperty. Attachments The appraiser must d the fllwing: State in the space prvided in the Final Recnciliatin sectin: "See attached appraiser's certificatin and Statement f Limiting Cnditins." Attach a cpy f these certificatins and limiting cnditins t all cpies f the apprais al reprt, r the reprt is nt valid fr HUD use. Clearly and distinctly discuss any additinal r different limiting cnditins t thse prvided in this Handbk. Attach any valuatin detail and supprt fr estimates f value by the Cst and Incme appraches. Prvide attachments fr any bservatins f the physical aspects f the prperty that lead t a recmmendatin fr a physical inspectin. Attach the fllwing t the URAR: the appraiser's certificatin the statement f limiting cnditins that HUD has adpted the certificatin number r license number and expiratin date D-19

138 Then frward the cmplete appraisal package t the lender. Field Definitin f Market Value Prtcl "The mst prbable price which a prperty shuld bring in a cmpetitive and pen market under all cnditins requisite t a fair sale, the buyer and seller, each acting prudently, knwledgeably and assuming the price is nt affected by undue stimulus." Statement f Limiting Cnditins and Appraiser's Certificatin - Cntingent and Limiting Cnditins The appraiser's certificatin that appears in the appraisal reprt is subject t the fllwing cnditins: If the appraisal is based n a cnditin different r cntrary t the cnditins listed belw, full disclsure f the differing limiting cnditin must be inserted and made knwn in the value estimate. Any value-influencing limiting cnditins must be cited with the reprting f the estimate f market value. Field Matters f a Legal Nature. Sketch f Imprvements Special Fld Hazard Area Curt Testimny Adverse Cnditins Highest and Best Use Value True and Crrect Surces Prtcl The appraiser will nt be respnsible fr matters f a legal nature that affect either the prperty being appraised r the title t it. The appraiser assumes gd and marketable title and respnsible wnership. If applicable, the appraiser must specifically change this limiting cnditin and address the limitatins in the recnciliatin f market value. A sketch shwing the apprximate dimensins f the imprvements has been prvided in the reprt. If a sketch is nt prvided, the appraiser must reprt the lack f infrmatin t develp the sketch. Additinal visual aides, such as phtgraphs and brchures, are recmmended as attachments. The appraiser has examined available fld maps and has nted whether the prperty is lcated in a Special Fld Hazard Area. A cpy f the fld map is attached t the appraisal reprt fr any prperties in a fldplain. The appraiser is nt required t give testimny r appear in curt because he/she perfrmed the appraisal unless specific arrangements have been made befrehand. The appraiser has nted in the reprt any adverse cnditins he/she has fund. In additin, the appraiser has n knwledge f hidden cnditins that wuld decrease the value f the prperty. Any bservatin r knwledge f adverse cnditins must be reprted and made apparent t the reader f the appraisal reprt. The appraiser has estimated the value f the land in the cst apprach at its highest and best use and the imprvements at their cntributry value. These separate valuatins f the land and imprvements must nt be used in cnjunctin with any ther appraisal and are invalid if they are s used. The infrmatin that the appraiser used in the reprt was all frm surces that he/she cnsiders true and crrect. D-20

139 Field Disclsure f Cntents Subject t Cmpletin f Repairs Distributin f the Appraisal Reprt Prtcl The appraiser will disclse the cntents within the appraisal nly as prvided fr in the USPAP. The appraiser has based his/her appraisal reprt and valuatin cnclusin fr an appraisal that is subject t satisfactry cmpletin, repairs, r alteratins n the assumptin that cmpletin f the imprvements will be perfrmed in a wrkmanlike manner. The appraiser must prvide his/her prir written cnsent befre the lender/client may distribute the appraisal reprt t anyne ther than thse that are utlined in the URAR. Appraiser's Certificatin The appraiser must sign and certify that the fllwing statements are true in the develpment and reprting f market value in this appraisal reprt. The appraiser must attach additinal certificatin, if applicable, t meet specific reprting requirements fr prfessinal rganizatins and state certificatin and licensing. Field Sales Cmparisn Analysis Factrs that Impact Value Persnal, Prfessinal Analysis Interest in the Prperty/ Discriminatin Clause subject. Present r Future Interest in the Prperty Predetermined Value USPAP Cnfrmity Prtcl The statement affirms the prcess in which the appraiser perfrmed the Sales Cmparisn Analysis. After cmparing prperties t the subject, the appraiser certifies that he/she made financial adjustments based n the market t determine an apprpriate price fr the subject prperty. The appraiser has cnsidered all factrs that impact value and has nt knwingly withheld any significant infrmatin frm the reprt. The appraiser has reprted true and crrect infrmatin fr all factrs. AR stated infrmatin in the reprt is the persnal, unbiased and prfessinal analysis, pinins and cnclusins f the appraiser. The appraiser has n interest in the prperty and has nt perfrmed the appraisal in any way n the basis f the race, clr, religin, sex, handicap, familial status r natinal rigin f either the prspective wners r ccupants f the subject prperty r thse prperties in the vicinity f the The appraiser has n present r cntemplated future interest in the subject prperty, and neither emplyment nr cmpensatin is cntingent n the appraised value f the prperty. The appraiser was nt required t reprt a predetermined value and was nt encuraged t reprt a value that favrs the cause f the client r any related party. The appraisal was cnducted in cnfrmity with the Unifrm Standards f Prfessinal Appraisal Practice. An estimate f reasnable time fr expsure in the pen market is a cnditin in the definitin f market value and is cnsistent with the reprted estimate f Expsure Perid n the URAR. D-21

140 Field Prtcl Interir and Exterir Inspectin Prfessinal Assistance Prfessinal Assistance Appraiser Signature Appraiser Name Date Signed State Certificatin Number State License Number Expiratin Date f Certificatin r License The appraiser has inspected bth the interir and exterir f the subject prperty and the exterir f all cmparable sales analyzed and has nted any apparent adverse cnditins in the reprt. If the appraiser had significant prfessinal assistance in the perfrmance f the appraisal r the preparatin f the reprt, he/she must name the individuals prviding significant prfessinal assistance and disclse the tasks perfrmed by these peple. The appraiser must nte any individual prviding significant prfessinal assistance in the recnciliatin. In regards t certificatin and agreement with the Appraiser's Certificatin, the appraiser wh perfrmed the appraisal must sign in this field. The appraiser must print his/her name. The date that the appraiser certifies and agrees t the Appraiser's Certificatin shuld be entered in this field. The appraiser must enter the apprpriate and valid State Certificatin number. The appraiser must enter the apprpriate and valid State License number (if applicable) Enter the date State Certificatin r License Number expires. D-2 VALUATION CONDITION REQUIREMENTS This sectin describes the specific cnditins f the subject prperty that the appraiser must review and nte in the Valuatin Cnditins Frm f the Cmprehensive Valuatin Package. The physical cnditin f existing building imprvements is examined at the time f appraisal t determine whether repairs, alteratins r additins are necessary - essential t eliminate cnditins threatening the cntinued physical security f the prperty. Required repairs will be limited t necessary requirements cmmnly referred t as the three S's Rule: preserve the cntinued marketability f the prperty (Saleability) prtect the health and safety f the ccupants (Safety) prtect the security f the prperty (Security) These are typical cnditins that require repairs r replacements: termite damage damaged, inperative r inadequate plumbing, heating r electrical systems brken r missing fixtures rtten r wrn-ut cunter tps any structural failure in framing members D-22

141 leaking r wrn-ut rfs defective paint surfaces masnry and fundatin damage drainage prblems damaged flrs wrn thrugh t the finish brken plaster r sheetrck The appraiser must review each f the cnditins specified belw and nte "YES" if any f the deficiencies exist and "NO" if they d nt exist, except fr VC-1. Unlike the ther VC's, where a 'YES" mark indicates a limiting cnditin n the appraisal, in VC-1, "YES" renders the prperty ineligible and the appraisal must be returned t the lender. Guidelines are set frth belw t assist in the examinatin f the prperty. T perfrm this analysis, the appraiser must have full access t all areas listed. If unable t visually evaluate the imprvement in their entirety, return the appraisal t the lender until a cmplete visual inspectin can be perfrmed. The appraiser is nt required t disturb insulatin, mve persnal items, furniture, equipment, plant life, sil, snw, ice r debris that bstructs access r visibility. An inspectin dne in accrdance with the guidelines listed belw is visual and is nt technically exhaustive. These guidelines are applicable t buildings with fur r less dwellings units and their garages r carprts. This inspectin des nt ffer warranties r guarantees f any kind. SITE CONSIDERATIONS This sectin cnsiders the evidence f hazards. Hazards, as defined belw, endanger the health and safety f the ccupants and/r marketability f the prperty. VC-1 Site Hazards And Nuisances The appraiser must nte and cmment n all hazards and nuisances affecting the subject prperty. These hazards endanger the health and safety f the ccupants and/r the marketability f the prperty, including subsidence/sink hles, slush pits, heavy traffic areas, airprt nise and hazards, prximity t high-pressure gas r petrleum lines, immediate prximity t verhead high-vltage transmissin lines, smke, fumes, ffensive nises and drs. Fr detailed descriptins f these hazards, see Chapter 2-2, Special Neighbrhd Hazards and Nuisances, in this Handbk. These hazards will render a prperty ineligible, and the appraisal shuld be returned t the lender. Field Prtcl Subsidence/ Sink hles If there is surface evidence f subsidence, the site is (Handbk Chapter 2-2 C) ineligible. Mark "YES" in the VC. D-23

142 Field Prtcl Operating il r gas wells If the prperty is lcated clser than 300 feet frm an within 300 feet f existing active r planned drilling site, the site is ineligible. cnstructin (Handbk Mark "YES" in the VC. Chapter 2-2 D) Operating il r gas wells If the prperty is built within 75 feet f an perating well, within 75 feet f new the site is ineligible. cnstructin (Handbk Mark "YES" in the VC. Chapter 2-2 D) Abandned il r gas wells If the prperty is lcated clser than 10 feet frm an within 10 feet f new r abandned well, the site is ineligible. existing cnstructin Mark "YES" in the VC. withut a letter frm State agency (Handbk Chapter 2-2 D) Slush Pits If a prperty is prpsed near an active r abandned (Handbk Chapter 2-2 E) well, call fr a survey t lcate the pits and their impact n the subject prperty. If there is any readily bservable evidence f a slush pit, the site is ineligible. Mark "YES" in the VC. Excessive nise r hazard If there is excessive nise r unsafe traffic cnditins that frm heavy traffic area endangers the ccupants r affects the marketability f (Handbk Chapter 2-2 F) the prperty the site may be ineligible. Mark "YES" in the VC. New and prpsed If the prperty is prpsed cnstructin r cnstructin cnstructin in Runway existing less than ne year and lcated within a Runway Clear Zne Clear Zne, (Runway Prtectin Zne), fr civil airprts r (Handbk Chapter 2-2 I) a Clear Zne at military airfields, the site is ineligible. Mark "YES" in the VC. High-pressure gas r If the prperty is less than ten feet frm the uter petrleum lines within 10 bundary f a pipeline easement, the site is feet f prperty ineligible. (Handbk Chapter 2-2 I) Mark "YES" in the VC. Overhead high-vltage If the prperty is lcated in the fall zne (twer height) f transmissin lines within high vltage transmissin lines, the site is ineligible. engineering (designed) fall Mark "YES" in the VC. distance (Handbk Chapter 2-2 J) Excessive hazard frm If excessive smke, fg, chemical fumes r nxius drs smke, fumes, ffensive result in hazards t the ccupants, the site is nises r drs ineligible. (Handbk Chapter 2-2 K) Mark "YES" in the VC. D-24

143 Field Prtcl New and prpsed If any prtin f new r prpsed cnstructin is lcated cnstructin in Special within the 100-year fldplain, the site is ineligible Fld Hazard Area unless a LOMA r LOMR is submitted. (Handbk Chapter 2-2 L) Mark YES in the VC. Statinary strage tanks If the prperty is within 300 feet f a statinary, strage cntaining mre than 100 tank cntaining mre than 100 gallns f flammable r gallns f flammable r explsive material, the site is ineligible. explsive material Mark YES in the VC. (Handbk Chapter 2-2 M) PROPERTY CONSIDERATIONS Any deficiency nted as "YES" is a limiting cnditin in the appraisal. Each cnditin requires repair r further inspectin. The appraisal is prepared "as-repaired" and the valuatin is limited by thse nted cnditins. Fr the mrtgage t be eligible fr FHA insurance, these cnditins must be satisfied befre clsing. VC-2 Sil Cntaminatin Field Prtcl On-site septic Visually inspect the septic system and its surrunding area. system shws If there are bvius r readily bservable signs f system failure, require further inspectin t ensure that the system is in prper wrking readily bservable rder. evidence f system Mark YES in the VC, cnditin the appraisal n the inspectin r repair failure (Handbk and prepare the appraisal "as-repaired" subject t satisfactin f the Chapter 3-6 A-3) cnditin. Surface evidence If there is any readily bservable evidence f undergrund Undergrund strage tanks, f an make a requirement fr further analysis. Strage Tank Mark "YES" in the VC, cnditin the appraisal n that The (UST) n sit requirement and prepare the appraisal "as-repaired" subject t (Handbk the satisfactin f cnditin. Chapter 3-6 A-3) Prximity t Nte the prximity t dumps, landfills, industrial sites r ther sites dumps, landfills, that culd cntain hazardus wastes industrial sites r If there is readily bservable evidence f hazardus substances in the ther sites sil, make a requirement fr further analysis. Cnditins that culd that culd cntain indicate sil cntaminatin include pls f liquid, pits, pnds, lagns, hazardus stressed vegetatin, stained sils r pavement, drums r drs. materials If any f these cnditins exist, the appraiser shuld call fr an (Handbk envirnmental assessment. Chapter 3-6 A.3) Mark "YES" in the VC, cnditin the appraisal n an envirnmental assessment and prepare the appraisal "asrepaired" subject t the satisfactin f the cnditin. D-25

144 Field Prtcl Presence f pls If there is readily bservable evidence f n-site cntaminatin, make a f liquid, pits, requirement fr further inspectin. pnds, lagns, Mark YES in the VC, cnditin the appraisal n the inspectin r stressed repair and prepare the appraisal as-repaired subject t satisfactin f vegetatin, stained the cnditin. sils r pavement, drums r drs (Handbk Chapter 3-6 A.3) VC-3 Grading and Drainage Field Prtcl Grading des nt Examine the subject prperty t determine if there is prper grading and prvide psitive drainage. Prper drainage may include gutters and dwnsputs r drainage frm apprpriate grading r landscaping t divert the flw f water away frm structure the fundatin. (Handbk If the grading des nt prvide psitive drainage frm the Chapter 3-6 A.4) structure, make a repair requirement. Cnditin the appraisal n the requirement, mark YES in the VC and prepare the appraisal as repaired subject t satisfactin f the cnditin. Standing water Nte any readily bservable evidence f standing water near the prximate t prperty that indicates imprper drainage. structure If the standing water is prblematic, make a repair requirement, (Handbk cnditin the appraisal n the requirement, mark YES in the VC and prepare the appraisal as repaired subject t this cnditin Chapter 3-6 A.4) VC-4 Well, Individual Water Supply and Septic Field Prtcl Prperty lacks Nte the surce f dmestic water. cnnectin t If the prperty is already cnnected t a public system, mark "NO" in public water the VC frm. (Chapter 3-6 A-5) If the prperty is equipped with a well, determine whether cnnectin t a public system is feasible. O If cnnectin is feasible (3% r less f the estimated value f the prperty), hkup is MANDATORY. Cnditin the appraisal n cnnectin t hkup, mark "YES" in the VC and prepare the appraisal as-repaired" subject t the satisfactin f that cnditin. Fr wells, cnditin the appraisal n the water-testing requirement. D-26

145 Field Prtcl Prperty lacks If a dug well serves the prperty, mark "YES" in the VC, cnditin the cnnectin t appraisal n further inspectin by the lender and prepare the appraisal public water "as-repaired" subject t the satisfactin f the cnditin. (Chapter 3-6 A.5) Nte the distance between any surce f pllutin and a dmestic well. A dmestic well must be a minimum f 50 feet frm a septic tank, 100 feet frm the septic tank's drainfield and a minimum f 10 feet frm any prperty line. If the abve cnditins d nt hld, cnditin the appraisal n inspectin and/r repair and prepare the appraisal "as-repaired" subject t satisfactin f the cnditin. If there are mechanical chlrinatrs r water-flw that decreases nticeably while running simultaneus plumbing fixtures, mark "YES" in the VC, cnditin the appraisal n further inspectin and prepare the appraisal "as-repaired" subject t satisfactin f the cnditin. Prperty lacks Nte the sewage cnnectin-public/cmmunity r septic. cnnectin t If prperty is already cnnected t a public system, mark "NO" in the VC public/ frm. cmmunity sewer Determine whether cnnectin t a public system is feasible. system If cnnectin is feasible, hkup is MANDATORY. Cnditin the (Handbk the Chapter 3-6 A.5) appraisal upn its hkup, mark "YES" in the VC and prepare appraisal "as-repaired" subject t the satisfactin f the cnditin. If the prperty is served by dug wells, springs, lakes, cisterns r rivers, it is ineligible. Mark "YES" in the VC and explain. VC-5 Field Wd Destrying Insects Prtcl Structure and If yes, require a pest inspectin, mark "YES" in VC-5, cnditin the accessry appraisal n that requirement and prepare the appraisal "asrepaired" buildings are subject t the satisfactin f the cnditin. grund level and/r wd is tuching grund (Handbk Chapter 3-6 A.6) D-27

146 Field Prtcl The huse Examine the subject prperty fr readily bservable evidence f wd and/r ther bring insect infestatin and excessive dampness r large areas where the structures within vegetatin is dead. The legal Indicatins that a licensed pest cntrl prfessinal shuld be required fr bundaries f the an inspectin f the subject prperty include mud tunnels running frm prperty indicate the grund up the side f the huse, swarms arund wd structures and evidence f active small piles f wings arund windws. termite If the abve cnditins exist, make the requirement fr a termite infestatin inspectin frm a licensed pest cntrl cntractr, cnditin the appraisal (Handbk n the requirement, mark "YES" in the VC and prepare the appraisal "as- Chapter 3-6 A.6) repaired" subject t the satisfactin f the cnditin. D nt require a pest inspectin based slely n the age f a prperty. Inspectins are necessary whenever there is evidence f decay, pest infestatin, suspicius damage r when it is custmary t the area r required by state law. VC-6 Field Private Rad Access and Maintenance Prtcl Prperty All rads must have vehicular and pedestrian access. inaccessible by If the prperty is inaccessible by ft r by vehicle, mark "YES" in the VC, ft r vehicle make a repair requirement and prepare the appraisal "as-repaired" (Handbk subject t the satisfactin f the cnditin. Chapter 3-6 A-7) Prperty In all cases where a private rad exists, submit evidence that the rad is accessible nly by prtected by a permanent recrded easement (nn-exclusive, nnprivate rad r revcable radway, driveway easement withut trespass frm the drive prperty t a public street/rad) and that there is an acceptable (Handbk maintenance agreement recrded n the prperty r that is wned and Chapter 3-6 A-7) maintained by a Hme Owners Assciatin (HOA). If there is n such easement, mark "YES" in the VC, cnditin the appraisal n attaining the easement and prepare the appraisal "as repaired" subject t the satisfactin f the cnditin. Prperty is nt FHA defines all-weather surface as a rad surface ver which emergency prvided with an vehicles can pass in all types f weather. all-weather If the prperty is nt prvided with an all-weather surface, cnditin the surface (gravel is appraisal n its repair, mark "YES" in the VC and prepare the appraisal acceptable) (Handbk Chapter 3-6 A-7) as-repaired" subject t satisfactin f the cnditin. D-28

147 VC-7 Structural Cnditins This chapter addresses the structural cmpnents f the subject prperty and the effect that their cnditin may have n the habitability and enjyment f the prperty (Chapter 3-6). An appraiser must examine the flring, framing, walls, ceiling, attic and rfing fr structural sundness. The appraiser will examine the fllwing cnditins: Field Prtcl Flr Supprt Examine the flring/jists fr any signs f water leakage r damage, Systems hles, large cracks in cncrete slabs, leakage and readily bservable (Handbk evidence f rdent r termite infestatin/damage, temprary supprts r Chapter 3-6 A.8) jacks r piers. If these cnditins exist, cnditin the appraisal n their repair, mark "YES" in the VC and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. Framing/ Examine all framing, walls and ceilings fr sundness, significant cracks Walls/Ceiling that are visible in the expsed prtins f the walls and culd effect (Handbk structure, gaping hles and significant water damage. Chapter 3-6 A.8) If these cnditins exist, cnditin the appraisal n their repair, mark "YES" in the VC and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. Attic Enter the attic and bserve the interir rfing fr insulatin, deficient (Handbk materials, leaks r readily bservable evidence f significant water Chapter 3-6 A-8) damage, structural prblems, previus fire damage, RFT sheathing, expsed and frayed wiring and adequate ventilatin by vent, fan r windw. If any f these deficiencies exist, cnditin the appraisal n their repair, mark "YES" in the VC and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. VC-8 Fundatin Basement Field Prtcl Fundatin/ Examine the fundatin/basement fr inadequate access, dampness r Basement readily bservable evidence f significant water damage and readily (Handbk bservable cracks r ersin that effect structural sundness. Chapter 3-6 The fundatin/basement must have a vapr barrier. A.10) If these deficiencies exist, cnditin the appraisal n their repair, mark "YES" in the VC and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. D-29

148 Field Prtcl Crawl Space Examine the crawl space fr inadequate access, distance frm flr jists t grund, insulatin, ventilatin and any ther structural prblems (Handbk. Chapter Access t the space shuld be clear. Enter the crawl space t 3-6 A.11) bserve cnditins except when access is bstructed, when entry culd damage the prperty r when dangerus and adverse situatins are suspected. Access shuld be prvided by the hmewner/seller The space shuld be adequate fr maintenance and repair, typically greater than 18 inches. The supprt beams shuld be intact and f structural sundness. The space must nt have excessive dampness r pnding f water. In huses where misture is present, the prblem must be crrected by installing a sump pump, crrecting the exterir drainage r by prviding prper crss-ventilatin. If any f these inadequacies exist, cnditin the appraisal n their repair, mark "YES" in the VC and prepare the appraisal 'as-repaired" subject t the satisfactin f the cnditin. VC-9 Rfing Field Prtcl Cnditin f View the rf frm grund level t determine if the integrity f the rf Rfing is sufficient. (Handbk Observe rf cverings, rf drainage systems, flashing, skylights, Chapter 3-6 A.12) chimneys and rf penetratins and readily bservable evidence f leakage r abnrmal cndensatin n building cmpnents. It is nt necessary t bserve attached accessries, including but nt limited t slar systems, antennae and lightning arrestrs. Nte if the rf cvers the entire hme, if the rf has been repaired r patched substantially, if the material used n the rf was suitable fr the subject prperty and any ther visible signs f deteriratin resulting in hles, puddles, leakage, clgged r inadequate drains r missing sectins. If the subject prperty has a flat rf, nte that an inspectin is required, mark "YES" in the VC and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. Nte any warranties still in effect and if the remaining physical life is at least tw years. If the rf will last less than tw years, call fr a new rf. If a rf is cmpletely snw-cvered, re-inspect it later when weather permits. Cnditin the appraisal n repair f any f the rf items, mark "YES" in the VC and prepare the appraisal as-repaired" subject t the satisfactin f the cnditin. D-30

149 VC-10 Mechanical Systems An appraiser must examine all mechanical, plumbing and electrical systems in the subject prperty t ensure that they are in prper wrking rder. This examinatin entails turning n the applicable systems and bserving their perfrmance. Field Prtcl Inperable Explain in VC-10 systems due t Cnditin the appraisal n repair and assumed functinality, mark "YES" weather in the VC and prepare the appraisal "as-repaired" subject t the cnditins satisfactin f the cnditin (Handbk Chapter 3-6 A.13) Furnace/Heating Turn n the furnace/heating/air cnditining system t bserve whether System the system perfrms apprpriately and that n unusual nises are heard, and Air n drs r smke are emitted indicating a defective unit, etc. Cnditining Nte significant hles/deteriratin n the unit (central) Determine whether there is an installed heat r cl-air surce in each (Handbk rm by using the system's nrmal perating cntrls. It is nt necessary Chapter 3-6 A.14) t bserve the unifrmity f heat r cl-air t varius rms. Unit shuts dwn prir t reaching desired temperature In mst instances it will be pssible t activate the air cnditiner in the winter and the heater in the summer. Hwever, d nt perate the systems if ding s may damage equipment r when utside temperatures will nt allw system t perate. Nte any nncmpliance with this cnditin and explain it in the VC frm. Turn n the ht water t ensure that the ht water heater is perating apprpriately. If these cnditins exist, cnditin the appraisal n the repair f the cnditin, mark "YES" in the VC and prepare the appraisal "as-repaired" subject t satisfactin f the cnditin. Electrical System Examine the electrical bx t ensure that there are circuit breakers with n (Handbk visible frayed wiring r expsed wires in living areas and that there is Chapter 3-6 A.13) adequate amperage fr the appliances present in the prperty. If the appliances present at the time f the inspectin d nt appear t be reasnable (undersized), determine if there is adequate amperage t run standard" appliances, as per municipal cde. D-31

150 Field Prtcl Electrical System Ensure that the electrical switches and utlets perate prperty. Operate a (Handbk representative number f installed smke detectrs, lighting fixtures, Chapter 3-6 A.13) switches and receptacles inside the huse, garage and n exterir walls. Nte presence f sparks r smke frm utlets. It is nt required t insert any tl, prbe r testing device inside the panels, t test r perate any vercurrent r t dismantle any electrical device r cntrl. It is nt required t bserve telephne, security, cable TV, intercms r ther ancillary wiring. If any f the abve deficiencies exist, cnditin the appraisal n their repair, mark "YES" in the VC and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. Plumbing System Flush the tilets and turn n all faucets t determine that the plumbing (Handbk system is intact, that it des nt emit ful drs, that faucets functin Chapter 3-6 A.5) apprpriately, that bth cld and ht water run and that there is n readily bservable evidence f leaks r structural damage under fixtures. Turn n several cld water faucets in the huse t check water pressure and flw. Flushing a tilet at the same time will als reveal any weaknesses in water pressure. If the prperty has a septic system, inspect it fr any signs f failure such as dr, rust r surface evidence f malfunctin. If any f the abve deficiencies exist, cnditin the appraisal n their repair, mark "YES" in the VC and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. VC-11 Other Health and Safety Deficiencies This chapter addresses the interir cmpnents f the subject prperty and the effect that their cnditin may have n the habitability and enjyment f the prperty. The appraiser is nt required t bserve strm windws, strm drs, screens, shutters, awnings and similar seasnal accessries, fencing, garage dr remte cntrl transmitters, wallpaper, carpeting, draperies, blinds, husehld appliances r recreatinal facilities. Field Prtcl Other Health and Operate a representative number f windws, interir drs and all Safety exterir and garage drs. Deficiencies Verify that the electric garage dr pener will autmatically reverse r (Handbk stp when met with reasnable resistance during clsing. Chapter Nte and make a repair requirement fr any health r safety deficiencies 3-6 A.14 as they relate t the subject prperty, including brken windws/drs/steps, inadequate/blcked drs and steps withut a handrail. If any f the cnditins exist, cnditin the appraisal n their repair, mark "YES" in the VC and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. D-32

151 VC-12 Lead-Based Paint Hazard Field Prtcl Lead-Based If the hme was built befre 1978, nte the cnditin f all defective paint Paint surfaces and their site in the hme. (Handbk Cmment n the deteriratin f painted surfaces f the subject prperty. Chapter 3-6 Inspect all interir and exterir surfaces, such as walls, stairs, deck prch, A.15) railing, windws r drs fr defective (chipping, flaking r peeling) paint. (Exterir surfaces include surfaces n fences, detached garages, strage sheds and ther utbuildings and appurtenant structures.) If there is evidence f defective paint surfaces, cnditin the appraisal n their repair, mark "YES" in the VC and prepare the appraisal "as-repaired" subject t the satisfactin f the cnditin. VC-13 Cndminiums and Planned Urban Develpments (PUD) If the subject prperty is lcated in a Planned Unit Develpment r cndminium setting, it must be n FHA's apprval list r accepted thrugh reciprcity. The prperty shuld meet the wner-ccupancy standards and cmpletin standards defined belw. Field Prtcl This prject is Verify that the apprval number exists. The lender must supply the nt n FHA's apprval number n the appraisal. apprval list If the prject is nt apprved, mark "YES" in the VC and cnditin the appraisal n this infrmatin. The prperty The prject must be at least 51% wner-ccupied. des nt meet If wner-ccupancy rates are less than 51%, mark "YES" in the VC and wner- cnditin the appraisal n this infrmatin. ccupancy standards This prperty The prject must be at least 2/3 cmplete. des nt meet If cmpletin rate is less than 2/3, mark "YES" in the VC and cnditin the cmpletin appraisal n this infrmatin. standards Radn. Currently, HUD des nt require radn testing f hmes that are t be insured by this agency. D-33

152 Addenda Field Prtcl A. Assessed Enter the assessed market value in the VC addenda. (It varies by Market Value municipality but is entered nly when the value is represented as current.) The ttal f all taxes shuld be included. Excessive taxes can have a negative effect and must be reflected in the value. If there is n methd t relate the assessment t market value, such as fr new cnstructin, mark the assessed market "N/A". B. Estimated Quantify the csts assciated with the repairs in the VC. These csts relate Repair Csts strictly t repair and nt marketability. Use standard cst infrmatin, such as Marshall and Swift, in preparing the estimate. D-3 HOMEBUYER SUMMARY The Hmebuyer Summary intends t prtect the hmebuyer by infrming him/her f any material cnditins that typically make the prperty ineligible fr FHA mrtgage insurance. If any f the VC's are marked "YES" in the VC frm, the appraiser must dente it in the apprpriate bx f the Hmebuyer Summary and explain, in detail, the nature f the prblem. The lender is legally bund t address these prblems befre clsing n the prperty. Field Site Hazards Sil Cntaminatin Grading and Drainage Prblems Well, Individual Water Supply and Septic Prblems Wd Destrying Insects Private Rad Access and Maintenance Prblems Structural Deficiencies Fundatin Deficiencies Rfing Deficiencies Mechanical Systems Prblems General Health and Safety Deficiencies Deterirated Paint Prtcl Mark "Y" under prblem if any f the sectins in VC-1 are marked "yes Mark "Y" under prblem if any f the sectins in VC-2 are marked "yes". Mark "Y" under prblem if any f the sectins in VC-3 are marked "yes". Mark "Y" under prblem if any f the sectins in VC-4 are marked "yes". Mark "Y" under prblem if any f the sectins in VC-5 are marked "yes". Mark "Y" under prblem if any f the sectins in VC-6 are marked "yes". Mark "Y" under prblem if any f the sectins in VC-7 are marked "yes". Mark "Y" under prblem if any f the sectins in VC-8 are marked "yes". Mark "Y" under prblem if any f the sectins in VC-9 are marked "yes". Mark "Y" under prblem if any f the sectins in VC-10 are marked "yes". Mark "Y" under prblem if any f the sectins in VC-11 are marked "yes". Mark "Y" under prblem if any f the sectins in VC-12 are marked "yes". D-34

153 Glssary f Terms Cmpnent: A readily accessible and bservable cnstructin element f a system, including a flr, wall, framing r rf cnstructin that can be cnsidered individually - but nt individual pieces such as bards r nails. Dangerus r Adverse Situatins: Situatins that pse a threat f injury and/r require the use f special prtective clthing r safety equipment. Dismantle: T take apart r remve any cmpnent, device r piece f equipment that is blted, screwed r fastened by ther means and that wuld nt be taken apart by a hmewner fr nrmal husehld maintenance. Husehld Appliance: Kitchen and laundry appliances, rm air cnditiners and similar appliances. HVAC: Heating, ventilatin and air-cnditining system - ne cmbined system r separate systems. Nrmal Operating Cntrls: Devices used by hmewner in the peratin f a system, such as a thermstat, wall switch r safety switch. Observe: The act f making a visual examinatin. Operate: T cause systems r equipment t functin. Recreatinal Facilities: Spas, saunas, steam baths, swimming pls, tennis curts, playgrund equipment and ther exercise equipment, entertainment r athletic facilities. Representative Number. Fr multiple identical cmpnents such as windws and electrical utlets, ne such cmpnent per rm. Fr multiple identical exterir cmpnents, ne such cmpnent n each side f the building. Rf Drainage Systems: Cmpnents used t carry water ff a rf and away frm a building such as gutters, dwnsputs, leaders, splashblcks. System: A cmbinatin f interacting r interdependent cmpnents, assembled t carry ut ne r mre functins. D-35

154 U. S. Department f Husing and Urban Develpment Washingtn, D.C June 28, 1999 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mrtgagee Letter TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Lan Prductin: Handbk Valuatin Analysis fr Hme Mrtgage Insurance fr Single Family One- t Fur- Unit Dwellings, Cmprehensive Valuatin Package and the updated "Imprtance f Hme Inspectins" Frm T increase the accuracy and thrughness f FHA appraisals perfrmed as part f the hmebuying prcess, Secretary Cum annunced the Hmebuyer Prtectin Plan fr FHA insured mrtgages. Part f this plan includes: Revising and updating the nine-year-ld Appraisal Handbk. Revising the Valuatin Cnditin (VC) frm. Prviding a new disclsure t prspective hmebuyers which utlines the repair cnditins f the prperty as bserved by the appraiser. Targeting f prly perfrming appraisers fr quality assurance reviews. Annuncing strnger enfrcement actins against prly perfrming appraisers. This Mrtgagee Letter annunces the issuance f Handbk Valuatin Analysis fr Hme Mrtgage Insurance fr Single Family One- t Fur- Unit Dwellings (Appraisal Handbk), the Cmprehensive Valuatin Package (CVP) and the updated "Imprtance f Hme Inspectins" frm. These new appraisal guidelines and frms must be used fr all cases that btain new FHA case numbers rdered n r after August 1, Additinal instructins fr appraisers will issued in a frthcming Mrtgagee Letter. Appraisal Handbk This new Appraisal Handbk reflects all f the updates in FHA appraisal standards that have been adpted since the previus handbk was transmitted n March 15, 1990, as well as clarificatins t FHA appraisal standards, fr existing, prpsed and new cnstructin f ne- t fur- unit dwellings fr FHA insured mrtgage purpses. This Appraisal Handbk incrprates the sectins f Mrtgagee Letters and ther HUD Handbks that are relevant t appraisals. Thse Mrtgagee Letters and Handbks are listed in the "Frewrd" sectin f the Handbk. The new Appraisal Handbk replaces mst, but nt all, f Handbk REV-1, "Valuatin Analysis fr Hme Mrtgage Insurance". The Appraisal Handbk has tw primary purpses:

155 2 Prvide guidance fr appraisers n hw t appraise existing, prpsed and new cnstructin f ne- t fur-family hmes fr which mrtgages are t be insured by FHA. Infrm appraisers t the Department's imprved mnitring f appraisals t ensure greater accuntability assciated with HUD appraisal refrm. Cmprehensive Valuatin Package (CVP) The CVP has three parts. Part ne is the Unifrm Residential Appraisal Reprt (URAR), part tw is the Valuatin Cnditins - Ntice t the Lender (VC frm) and part three is a new disclsure t hmebuyers entitled Hmebuyer Summary - Ntice t the Hmebuyer (Hmebuyer Summary) (see Attachments). These three frms are mre fully described belw. Part I -URAR The URAR (attached) has nt been mdified and remains the same fr FHA single family appraisals. Part 2- - VC Frm The VC frm (attached) has been revised t mre clearly reflect the items under each f the current VC categries needed t meet the Department's Minimum Prperty Standards r Requirements (MPS/MPR). Nn MPS/MPR r rutine maintenance items will n lnger be listed n the VC frm. Appendix D f the new Handbk lists the specific cnditins f the subject prperty that the appraiser must bserve and nte n the VC Frm. In additin, this sectin prvides instructins n hw t cmplete the Frm. Part 3 - Hmebuyer Summary The Hmebuyer Summary will be prepared by the appraiser if any MPS/MPR nncnfrmity is nted by the appraiser. The appraiser must sign the Hmebuyer Summary and prvide this dcument t the Lender, in additin t the URAR and VC frm. The Lender will be required t prvide each prspective brrwer with the Hmebuyer Summary when a nncnfrmity is nted (attached). The lender's Direct Endrsement (DE) Underwriter must review the Hmebuyer Summary t assure that it is cmplete. Brrwers must be in receipt f this Hmebuyers Summary at least five (5) business days prir t lan clsing and must s indicate n the frm. A Cpy f the Hmebuyer Summary signed by the appraiser and dated by hmebuyer must be included in the case binder submitted t FHA with the lender's request fr insurance endrsement. Repair items must be cmpleted prir t lan clsing, using the repair prcedures set frth in Appendix D f the new Handbk.

156 3 Imprtant FHA Cnsumer Prtectin Ntice FHA has replaced the "Imprtance f Hme Inspectins" frm fund in Mrtgagee Letter dated December 9, 1996, with the frm "Fr Yur Prtectin: Get a Hme Inspectin". The "Fr Yur Prtectin: Get a Hme Inspectin," infrms the hmebuyer that: FHA Des Nt Guarantee the Value r Cnditin f the Prperty. An Appraisal is nt a Hme Inspectin. The Brrwer Has the Right t have the Huse Inspected by a Prfessinal Hme Inspectr. The revised frm must be signed n r befre the date that the sales cntract is executed (the sales cntract must be re-executed if necessary) fr all transactins that will invlve FHA mrtgage insurance n existing prperty. A Cpy f the Ntice signed and dated by hmebuyer must be included in the case binder submitted t FHA with the lender's request fr insurance endrsement. A cpy f this revised frm is attached t this Mrtgagee Letter. Clarificatin f Existing Plicy Existing handbk instructins fund in HUD Handbk, Rev-1 pages 3-3 thrugh 3-4, and Mrtgagee Letter 95-7 allw DE underwriters t eliminate csmetic repair items identified n the VC frm by the appraiser. This Mrtgagee Letter clarifies that Minimum Prperty Requirements repair items cannt be waived and must be cmpleted prir t lan clsing, unless the cmpletin f repairs meets HUD guidelines fr the establishment f Escrw f Funds. Infrmatin Cllectin Requirements The infrmatin cllectin requirements referred t in this Mrtgagee Letter have been apprved by the Office f Management and Budget (OMB) under the Paperwrk Reductin Act f 1995 (44 U.S.C. Chapter 35). The OMB number issued fr this requirement is OMB Obtaining Frms, Disclsures and the Appraisal Handbk The handbk can be dwnladed ver the Internet at r r by calling Frms r disclsures nt attached t this Mrtgagee Letter can be btained frm the Department's Frms Warehuse at: Past and future Mrtgagee Letters can be viewed and dwnladed ver the Internet at:

157 4 In additin, when the handbk becmes available in ther media, this infrmatin will be added t the website. Assistance If yu have questins abut this Mrtgagee Letter, please cntact yur lcal Hme Ownership Center in Atlanta ( ), Denver ( ), Philadelphia ( ) r Santa Ana ( ). In additin, the HUD's Real Estate Assessment Center's Custmer Service Center can als prvide assistance; the telephne number is Sincerely, Attachments William C. Apgar Assistant Secretary fr Husing- Federal Husing Cmmissiner

158 Attachment 1 - Handbk Valuatin Analysis fr Hme Mrtgage Insurance fr Single Family Dwellings Attachment 2 - Unifrm Residential Appraisal Reprt Attachment 3 - Part 2: Cmprehensive Valuatin Package Valuatin Cnditins - Ntice t the Lender Attachment 4 - Part 3: Cmprehensive Valuatin Package Hmebuyer Summary - Ntice t the Hmebuyer Attachment 5 - "Fr Yur Prtectin: Get a Hme Inspectin" 5

159 U.S. Department f Husing and Urban Develpment Special Attentin f: TRANSMITTAL Handbk N Directrs, Hme Ownership Centers Directrs, Prcessing and Underwriting Issued: June 24, 1999 Divisins, Hme Ownership Centers Direct Endrsement Lenders 1. This Transmits: Changes t Handbk , Valuatin Analysis fr Single Family One- t Fur- Unit Dwellings, dated July Explanatin f Changes: This handbk has been revised t crrect several minr errrs in this new handbk. Specifically, the wrd "lcatin" has been changed t "site" n several pages nted belw under Filing Instructins. In additin, in Sectin B-1, the percentage flr area used fr cmmercial purpses fllws these standards: - One stry building 25 % - Tw stry building 49 % - Three stry building 33 % This change crrects the reversal f the percentages fr tw and three stry buildings. 3. Handbk Cancellatins: Nne 4. Filing Instructins: Change "lcatin" t "site" n the fllwing pages: Page i Page 5-2 Page v Page 7-4 Page 2-1 Page 8-2 Page 2-2 Page 8-3 Page 2-4 Page 9-3 Page 2-5 Page A-9 Page 2-7 Page D-2 Page 2-8 Page D-24 Page 2-9 Page D-25 Page 2-12 Page D-34 Page 4-11 Page D-35

160 U.S. Department f Husing and Urban Develpment Special Attentin f: Transmittal fr Handbk N.: Directrs, Hmewnership Centers Directrs, Prcessing and Underwriting Issued: May 20, 1999 Divisins, Hme Ownership Centers Direct Endrsement Lenders 1. This Transmits A new Handbk, , Valuatin Analysis fr Hme Mrtgage Insurance fr Single Family One- t Fur- Unit Dwellings. This handbk replaces and supercedes mst f the prvisins f Handbk REV-1, identified belw under the heading f HANDBOOKS. 2. Explanatin f Materials Transmitted: This handbk reflects plicy clarificatins and imprvements since March 15, 1990 n valuatin requirements fr existing, prpsed and new cnstructin f ne- t fur-family units fr mrtgage insurance purpses. The new Handbk incrprates and updates the sectins f Mrtgagee Letters and ther HUD Handbks that are relevant t appraisals. The fllwing sectin identifies thse Mrtgagee Letters and Handbks. MORTGAGEE LETTERS These Mrtgagee Letters have been incrprated in part r in full int the Handbk: Appraisal Management Firms Clarificatin f Regarding New Cnstructin in Fld Plains FHA New Cnstructin, Inspectin and Appraisal Requirements Sectins: Cst Apprach, Valuatin Cnditins, Appraisal Frm Paperwrk Reductin, Lead-Based Paint Disclsure Sectin: Lead-based Paint Appraiser Standards 96-5 Eliminatin f the Fee Panel and Mrtgagee Staff Appraiser Designatins Revisins t the 203(k) Rehabilitatin Mrtgagee Insurance Prgram Testing f and On-Site Well/Septic System Inspectins (Web) Prcedures fr Lenders t Use t Select Their Own Appraisers Sectins III and IV Clarificatin f ML 92-18: Testing f Individual Wells HUD Rerganizatin Revisins t the 203k Rehabilitatin Insurance Prgram Item Prcessing Sec Indian Reservatins Item Revised Appraisal Reprt Frms, Single Family Lan Prductin - Acceptance f Individual Residential Water Purificatin Equipment; Sectin Implementatin f Certain Prvisins f the 1990 Husing Legislatin Sectin X HANDBOOKS The fllwing chapters/paragraphs fr the handbk identified belw have been incrprated int the new Handbk The infrmatin has been updated t reflect the newest plicies and prcedures. Because these Handbks were written primarily fr lenders, builders r HUD staff, the instructin relevant t the appraiser has been extracted. The prtins f these dcuments relevant t lender requirements have nt been superceded. Distributin: W-3-1, R-1, R-2, R-3-1 (H) (RC), R-3-2, R-3-3, R-6. R-6-2, R-7, R-7-2, R-8, ASC

161 REV-2 Mrtgagees' Handbk Applicatin thrugh Insurance (Single Family) Paragraph 2--General Acceptability Standards fr Prperty Paragraph The Appraisal Package Paragraph Review f the Appraisal Paragraph Cmpliance Inspectin Paragraph Satisfying Repair Requirements Paragraph Sectin 223(e) Paragraph Delivery f Statement f Appraised Value Paragraph 4-3--Recnsideratin: Changes Invlving Prperty Paragraph 6-5--Sectin 203(k) REV-1 Single Family Direct Endrsement Prgram Paragraph l-6--minimum Prperty Standards Paragraph 1-7--Eligibility f Cndminium Prjects Paragraph 3-3--Prperty Va luatin Prcedures Paragraph Lead-Based Paint Hazard Paragraph 4-9 D--Pst-Endrsement Technical Review HUD-FHA Underwriting Analysis Paragraph 1-8--Instructin fr the Selectin and Apprval f Fee Persnnel Paragraph Training Paragraph 3-6--Differentiatin between Valuatin and Mrtgage Risk Analysis Chapter 4--Eligibility Requirements Underwriting - Technical Directin fr Hme Mrtgage Insurance Paragraph Field Review Valuatin Analysis fr Hme Mrtgage Insurance All Chapters have been incrprated except fr the fllwing; they are t remain in place fr lender instructins as utstanding plicy and prcedures fr valuatin analysis. Paragraph Study Of Future Utility Of Prperty Chapter 6, Sectin 4--Mdified Cst Chapter 6, Sectin 5--Leasehlds Paragraph 8-4--Recnsideratin Of Appraised Value Paragraph Prcessing Individual Lt Applicatins Paragraph Undevelped Lt Paragraph Prcessing Freclsed Manufactured Hme Sites Chapter 11--Cndminiums And Planned Unit Develpments Paragraph Claims Withut Cnveyance Of Title (CWCOT) Paragraph Mrtgage Credit Requests Fr Appraisal Paragraph Existing Huses Being Mved T New Fundatins Paragraph HUD Acceptance Of VA Certificatin Of Reasnable Value (CRV) Paragraph Applicatin Fr Operative-Builder Cmmitments Paragraph Sil Treatment With Individual Water Systems Paragraph Estimate Of Value Of Fragmental Prperties Paragraph Water And Sewage Systems Paragraph Shared Wells Paragraph Earth Sheltered Husing Paragraph Dme Hmes

162 Rehabilitatin Hme Mrtgage Insurance, Sectin 203(k) Paragraph 3-2--Step-by-step Prcedures: Appraiser Respnsibilities Chapter 2--Valuatin Prcedures Miscellaneus Type Hme Mrtgage Insurance, Sec. 223 (a), (e), and (d) Paragraph 3-1 e--administrative Instructins Paragraph 4-4--Insurance in Older Declining Urban Areas Hme Mrtgage Insurance Cndminium Units Paragraph 10-2 a--data Needed fr Valuatin Paragraph 10-2 b--apprach t Value Paragraph d--prcessing the Unit Minimum Prperty Standards fr Husing, 1994 Editin Appendix K--Minimum Prperty Standards fr prperty which is nt multifamily r care-type 3. Effective Date: July 1, Filing Instructins: 5. Insert Handbk , dated May 20, 1999 William C. Apgar Assistant Secretary fr Husing-Federal Husing Cmmissiner

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