Wednesday , 6 January 2021

10 Things Appraisers are now Being Asked to do for FHA Appraisals

This article was originally published HERE for more articles from Ryan Lundquist you can visit

Have you heard FHA made some changes recently to their appraisal manual? That’s right. The new FHA 4000.1 Handbook went into effect on September 14th, 2015, and it has stirred quite a bit of conversation and emotion among appraisers. Even agents have expressed fear that appraisers will now be calling for more repairs. In my opinion most of the changes have more to do with how appraisers write their reports rather than new items to look for during an inspection. Let’s scan a few of the changes below to get a general sense of the new manual, but realize it’s nearly impossible to talk through every single change. Have a read and let me know what you think.

FHA changes - image purchased and used with permission from 123rf dot com

10 things appraisers are now being asked to do for FHA appraisals

  1. The Appraiser MUST: FHA has introduced more definitive language for appraisers by highlighting the word “must”. This theoretically helps HUD be more clear about their expectations. For instance, the manual says, “The appraiser MUST operate all conveyed appliances and observe their performance”, and “The appraiser MUST note and comment on all onsite hazards and nuisances affecting the property”.
  2. Observation vs. Inspection: The appraisal “inspection” is now called an “observation” instead of an “inspection”.
  3. Angled Photos: When possible, appraisers MUST take comp photos at an angle to show the front and side of the house. If you didn’t know, this is how appraisers take front photos for the subject property during a FHA appraisal, but it’s now also the case for comps.
  4. Legal Nonconforming: If a property has a legal nonconforming zoning, the appraiser MUST comment whether it can be rebuilt as improved. Of course it’s not always easy to get this type of information, and sometimes cities or counties might even charge $100+ to say whether the property can be rebuilt as is (this is often called a “burn letter”). Remember that appraisers won’t pay for this type of information, so lenders, AMCs, and/or buyers are going to need to obtain this information in a timely manner so the appraiser can do his/her job.
  5. Provide Legal Documents: An appraiser should have a preliminary title report and TDS (disclosure statement in California) for a FHA appraisal since FHA says the mortgagee MUST provide “any other legal documents contained in the loan file” to the appraiser. We all know that rarely happens. Sometimes an AMC may not have all the information, but other times certain documents might be withheld on purpose for whatever reason. Will this actually happen? We’ll see.
  6. Full Attic (Maybe): Appraisers will need to fully access the attic and crawl space if there is space available to do so. If the appraiser cannot observe the full attic, a “head and shoulders” view should suffice. Appraisers have already been required to do a “head and shoulders” inspection at the least. If the attic is fully finished, the appraiser can do the inspection of the entire space, but if it’s not, appraisers won’t be walking on 2x4s in the attic and having legs break through the ceiling (they shouldn’t be doing that anyway).
  7. Airport Contour Maps: FHA is asking appraisers to review airport contour maps and comment on the marketability of the subject being near an airport. You may be wondering what the heck an airport contour map is (like many appraisers). Well, it’s a map that basically shows noise levels surrounding an airport. The old FHA manual actually stated the appraiser must review contour maps, but the new manual takes it a step further to ask the appraiser to do reporting on the map or any issues. Old Handbook: “Appraisers must identify affected properties, review airport contour maps and condition the appraisal accordingly.” New Handbook: “The Appraiser must review airport contour maps and analyze accordingly. The Appraiser must determine and report the marketability of the property based on this analysis.”
  8. Two Years of Roof Life: The appraiser MUST report if the roof has less than two years of remaining life, and make the appraisal subject to inspection by a professional roofer. This is actually an interesting requirement since appraisers probably aren’t qualified to say whether a roof definitively has less than two years or roof life or not. Isn’t that the job of a roofer?
  9. Consider Three Approaches: If you didn’t know, there are three approaches to value in an appraisal report. Appraisers often only use the Sales Comparison Approach (analyze comps), but there is also the Cost Approach and Income Approach. FHA is saying appraisers must consider and attempt all approaches to value and must develop and reconcile each approach that is relevant. This doesn’t mean appraisers are required to complete all three approaches to value in the appraisal, but they do need to at least consider the approaches and do them if they are relevant. I have heard the real estate community say things like, “The Income Approach is now required for FHA”, but that’s not really true. An Income Approach would only be required if the appraiser determines it is relevant for the assignment.
  10. Sump Pump: This is a good point to end on since it highlights that appraisers are ultimately being asked to be more descriptive in their reports. The appraiser MUST notify the mortgagee if the sump pump is not properly functioning at the time of appraisal. This is an interesting issue. How is the appraiser supposed to determine if a sump pump in a basement is working or not? “Hey Mr. Owner, do you mind bringing the hose into the basement so we can do a little test?”  :)

Do you feel a little stressed? If so, that’s normal. It will take a little while for appraisers to get used to these changes, and it will take some adjusting for the rest of the real estate community too. Again, most of these changes have to do with actually writing the appraisal report instead of what happens during the appraisal inspection observation. DOWNLOAD the new FHA 4000.1 Handbook HERE. 

DOWNLOAD an FHA inspection checklist HERE (pdf) (made a few months ago, but still relevant for today despite the manual changing)

Possible Impact of these FHA Changes:

  1. Ripple: In recent years conventional appraisals have seemingly been on a trajectory to become more like FHA appraisals, so there may be more required of appraisers for conventional loans in coming time.
  2. Fees: It’s possible that some appraisers will charge more for FHA assignments since there is more work involved.
  3. Rejection: It’s also possible that some appraisers will simply choose not to accept FHA assignments because of the extra work and/or liability.
  4. Agents Be Ready: It is going to be important for real estate agents to be aware of some of the things appraisers need during a transaction so turn-times don’t have to be extended needlessly. For instance, if an appraiser needs disclosure statements (called a TDS in California) or a “burn letter” (a letter stating the property can be rebuilt as it is),  agents may be able to help track down that type of information. Or if an appraiser is going to observe the attic, be sure your seller knows to remove personal belongings under the scuttle so the appraiser can do the observation.

Questions: Any other changes you want to mention below? Did I leave anything out? What other impact might these changes bring? I’d love to hear your take.

Have any comments or would you like to submit content of your own? Email


About Ryan Lundquist

Ryan Lundquist
Ryan Lundquist is a certified residential appraiser in the Sacramento area. Ryan runs the Sacramento Appraisal Blog, which is a top-ranking appraisal blog in the United States. He has been quoted in local and national publications and has been involved with the Sacramento Association of Realtors for nearly a decade. Ryan is also a board member of the Real Estate Appraisers Association of Sacramento. His clients include home owners, real estate agents, governmental agencies, attorneys, and lenders. Ryan also won the Affiliate of the Year award in 2014 from the Sacramento Association of Realtors.

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    Thank you Ryan for sharing this information as every agent, home owner, loan officer, processer, lender, and AMC should review it in detail. A big issue in San Diego involves your comment #4 and Legal Non-Conforming issues (FHA / Conv.). The city of course can not indicate on the phone or in person if a property can be rebuilt, but rather they require a zone history letter. The letter costs over $500 and generally takes 3 to 4 weeks for the city to complete, and although the price is steep, the issue becomes the delay in obtaining the information. Every interested party contacts me and tries to tell me it can be rebuilt (less than 50% destroyed, same footprint, etc.) to avoid the delay, but can never provide me a city generated document saying as such. The pressure is extreme, and of course I’m always told that other appraisers have never required this before. With one client bumping up the fee $25 and all the rest keeping it the same, I will not be doing FHA appraisals.

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      Thanks Bill. I appreciate your thoughts here. The “burn letters” are indeed not easy to get, and there is work required to get them. It’s not a matter of getting something on the phone as you say. You have to go down and spend some time with the county / city. For any FHA work I will be requiring another party to provide this information to me or I will charge for more time involved. We simply cannot take the leap to say something can be rebuilt if it might not be possible. I need a definitive source to make that statement, and I know I’m not that source. I agree that a $25 fee bump is very minimal considering how the manual changed.

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      Isn’t a “burn letter” basically a worthless document? The letter will say that a property can be rebuilt as of today, but next week the city or county can pass a new ordinance that changes that. In the County I work in in CA, the County and every incorporated city except one say that if a property was legally built, it can be rebuilt 100% as-is in the case of fire, so I have no problem stating that in a report. I’ve never gotten a “burn letter”, and I doubt I could get one if I tried. If a property was not legally built, or if there were non-permitted additions, then it’s a different story.

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        Vernon, I have several points that need to be made. In doing our job as an appraiser we are required to determine the zoning compliance of each property and the built in forms give us four categories to choose from. For the purpose of this argument we are going to assume the property is legal nonconforming. Although I will make some assumptions in this argument, let’s say public tax records are
        in line with what you find during your inspection (4 unit property, 12 bedrooms, 8 baths, same GLA, etc.) but the 4 units are on a 5,000 sf lot when current zoning allows one unit per 3,000 sf. Again making assumptions, the property is of legal status but with changes in zoning, the property is now nonconforming. In order to determine the properties market value, I need to address if this has an adverse effect on the properties marketability or value. Although agents, loan officers, processers, owners and uninformed appraisers will blindly take
        on the liability and say yes it can be rebuilt (destroyed less than 50%, within 10% of original GLA, etc.), my cities department will NEVER in person or on the phone tell you this. I will not fool myself and say I can review 100+ pages of zoning documents, and be able to document the property rights kept on record since it was built, just to say it will be okay (can be rebuilt). Although it’s true the burn letter or what my county calls zone history letter ($500 / 3 + weeks) will have a single date, the liability is taken off me and put back onto the lenders
        shoulders. In cases where the property can be rebuilt, the result is little to no adverse effect on value (the loan moves forward) however in cases where it can’t, lenders have always killed the deal. I never take the word of anyone and always ask for a document in writing to reduce my liability (rental lease, zone history letter, condo questioner, purchase contract addendums, etc.).

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          Most of the legal non-conforming uses I see are tract or semi-custom homes, where the current zoning now requires larger lots sizes than were required years ago. I had a County planner tell me flat-out that any home built legally on a legal building lot, that is now legal nonconforming can be 100% rebuilt as-is should it be destroyed by fire. So I don’t see any risk to me as an appraiser to state that in my report. That SFR can be rebuilt. For a 2 to 4 unit property, I’m especially careful to make sure that County records for the number of units, number of bedrooms, bathrooms, and garage spaces, and the living area size match up pretty well with what actually exists.

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    Not doing them anymore. It is becoming more and more like an actual building inspection. If FHA wants a building inspection they just need to make it part of the process. And because FHA is becoming less and less a factor in the mortgage process in my area, I am getting the feedback others will not do them anymore.

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      Thanks Douglas. The interesting part will be how conventional products respond in coming time. I would suspect more will be required. FHA volume is actually increasing in my market, though obviously that is not the case in every market (like yours). The appraisers I know have raised their FHA fees, though some have opted out.

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        It’s not that the volume is “increasing”, it’s simply that your volume of FHA orders is increasing. Every appraiser with an ounce of integrity and intelligence has decided to walk away from FHA work.

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          Actually, FHA volume increased 30% this year in my market when considering four surrounding counties.

          Those are strong words.

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    CLARIFICATION: A reader emailed thinking I was saying FHA appraisers need to take photos of both sides of the house for the comps. That is definitely not what I intended to communicate above, but I can see how the person got that. Comp photos should be angled to include the front of the house with one side of the house. Just one photo.

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    While I’m operating the washer and dryer, maybe I could throw in a load while I’m inspecting theproperty.

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    I have several knifes I need to know how much they are worth

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