I thought I would take a break from my typical type of appraisal post to thank the NAR publicly on behalf of all appraisers. As many in the real estate field may be aware, last year the Federal Housing Administration (FHA) made changes to their FHA handbook that increased the scope of work required of appraisers. In so doing the changes also increased the liability that appraisers face. The National Association of REALTORS® recently wrote a letter addressing the change in requirements due to a negative effect on the appraisal and home buying process.
Ever since the new FHA Handbook 4000.1 was revised last year there’s been issues arise that have resulted in glitches with the FHA mortgage loan and appraisal process. The new handbook blurs the line between home inspector and appraiser.
With fear of increased liability and potential damage, appraisers are requesting either real estate agents or owners be present to operate appliances and mechanical systems within the house to verify operation. Appraisers argue that carrying out FHA’s requirement to “operate all conveyed appliances and observe their performance” as well as requirements to fully inspect attics and crawlspaces crosses the line from appraising into home inspection.
In addition, appraisers have shared bad experiences where they were held accountable for property damage that occurred after they left a home where they had tested and verified the performance of appliances and mechanical systems. In other instances an appraiser’s safety was jeopardized during the inspection of an attic or crawlspace.
The National Association of REALTORS® has seen this occurring and is being proactive by requesting HUD/FHA make some changes.
Appraisers are not home inspectors
In their response NAR makes some very good point that I’m not sure even the organizations that are in place to support and fight for appraisers rights have adequately addressed. The increase in appraisal requirements and appraiser liability are having negative consequences on those who use FHA financing.
Results of the changes in policy include increased appraisal fees, requirements for home inspection reports that answer questions asked by FHA, and requests for homeowners and agents to provide assistance in operating and observing the functioning of all appliances conveyed with the property.
Because of the increase in unreasonable requirements some appraisers have quit doing FHA appraisal assignments. The bottom line is that these changes in requirements are hurting the very people this type of financing is suppose to help by making the process more costly and time consuming. The majority of people hurt by this include first time homebuyers, low to moderate income buyers and minorities because FHA financing is the best financing for them.
NAR requests changes to be made
To help improve the process for FHA financing NAR has requested that changes be made in two key areas. The first area is the requirement that appraiser analyze the functioning of various appliances and systems in the home. NAR gets it that APPRAISERS ARE NOT HOME INSPECTORS and should not be asked to do what home inspectors do. In addition, because the general public perceives what appraisers do as being the same thing as a home inspection, they are not getting true home inspections by licensed professionals.
The NAR feels it is the best interest of buyers to get home inspections and this is not happening. Buyers believe that what appraisers are doing is adequate to uncover any potential problems the house might have but his is not the case. Appraisers are trained to measure and report on market value not to uncover and/or diagnose existing problems that a house has, unless it is readily apparent.
The second area that the NAR asks to be addressed is to revise the form HUD-92564-CN, For Your Protection: Get a Home Inspection. This form should be more precise in explaining that an appraisal is not a home inspection and the exact reason and use of the appraisal in an FHA financing transaction.
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