By now, you have heard that the FHA requirements for residential appraisers are soon changing. This has caused some real consternation among appraisers across the fruited plain. Rumors have formulated and appraisers are prepared for the worst. I just finished a 7-hour course on the new HUD changes and my advice is simple; chill out!
First of all, let me make it very clear; I am not an FHA expert, lawyer, nor am I acting in an official capacity whatsoever. The advice herein is simply my opinions based on casual observation and should be taken with a large grain of salt thrown over the proverbial shoulder. The information is worth about what you paid for it.
First, a little background. There is a new HUD handbook. It is titled 4000.1 and is supposed to supplant all previous HUD handbooks and official Mortgage Letters. That is not to say that there will not be addendums and changes in the future, but as of September 14, 2015, HUD 4000.1 is the new king of the block. I suggest (with no salt, sugar, or cream thrown over the shoulder) that you pick up a copy and read it. If you are on the HUD panel (or want to be in the future) you need to familiarize yourself with this new handbook as it will become your bible.
That being said, do not get the idea that, though the handbook is thick your whole world is a changin’. Indeed, most everything in the new handbook is, with some pointed exceptions, about what you have been doing all along. Appraisal assignments will mostly look conspicuously like they always have. So what is changing?
This article does not claim nor intend to be an exhaustive list of the FHA changes. There are lists available in several places online (and again, I recommend you read the book for your own list). Instead, I want to simply make you aware of some of the more major items that you will want to be aware of as well as some confusing items that may need clarifying in the future.
As I read it, there are anywhere from a dozen to sixteen ‘changes’ to the appraiser’s scope of work as it relates to FHA inspections and the appraisal process. I give a range because many of these things I have been doing for years and, though I am told they are different than before, they are not any different than I have been doing already. In other words, after a 7-hour course on the new HUD Handbook, I walked away breathing a big sigh of relief that my life was not going to be upended and turned around.
Enough with your stall tactics, Dustin! On to the biggest differences.
First, you will now be required to check the sales history for all comparables for 36 months (not just 12 months). This is something we have been doing at our office for a while now (due to client request), so this did not seem like a big deal to me, but it will be for some.
You are expected to view all areas of the crawlspace and attic (yes, I said “all”). Only a head and shoulders inspection is still required, but if you cannot see all of the corners, it looks like you will be going for a spelunking adventure. On the other hand, the handbook is quick to point out that an appraiser should not disturb insulation and such. Now, this is the area that may need some clarification from HUD. Even our instructor (someone supposedly well-versed in 4000.1) could not answer the question of how that is possible. Yet, the appraiser is required to certify the areas are free of trash and vermin. Does that include an old pop can dropped by the construction worker when he put the furnace in? Does that include spider-free? Do salamanders count? I guess that is yet to be understood.
Speaking of confusing parts of the new handbook; let’s talk about electricity. My reading of 4000.1 seems to use some potentially contradictory language. We will be required to certify that the electrical receptacles are working, but we are not required to probe anything into them to test. Hmmmm. Would someone explain that one to me?
Finally, appraisers are now required by HUD to test appliances to ensure they are working properly. Again, there is some ambiguous language here. First of all, we are told to check all appliances that are being conveyed as part of the transaction. Does that mean toaster ovens that are not permanently attached? What does a test look like? Do we bring a chicken to the home and wait for it to cook to make sure it is cooking evenly? Naturally, I digress a bit as I am sure HUD does not want you to get that picky, but the question of liability does come up. What happens if an appraiser turns on one burner on the stovetop to makes sure it works, but does not turn on the other three. Suzy Homemaker buys her dream home, Johnny turns on one of the other burners two weeks later to cook mac-n-cheese and it blows up in his face. Is Joe Appraiser now liable?
For brevity’s sake, I have only touched on a few things that stood out to me personally as I went through the new handbook. I am sure there is much to learn and many important things in the new HUD 4000.1 that I have not brought to your attention. I recently recorded a podcast that goes into a little more detail than could be done here (The Appraiser Coach Podcast Episode #033), but I again urge you to read 40001 on your own.
Naturally, there are many questions left to be answered. It is easy to believe that HUD would not be so literal in the interpretation of the guidebook, but in the litigious society we now live in, one must wonder what could happen. As one appraiser in my class put it, “Do I really want to keep doing FHA appraisals?” It is a good question and one which every appraiser should be asking themselves.
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