7 Appraisal

FHA APPRAISAL
The foreclosure crisis has caused the FHA to tighten standards regarding appraisals. A restricted money supply and lower credit standards have caused many people to use FHA loans. As a seller you need to know that your property is going to be appraised by the FHA. And their inspector will do a property inspection of the home. If the home does not pass the inspection and appraise for a high enough value you have no deal. Here are the 2010 FHA guidelines.

Technology
The housing industry has experienced remarkable change in terms of how homes are built, the materials incorporated into residential structures, and how these structures are financed or purchased. Subtle technology changes that reduce the cost of construction are generally readily adopted. For example, the switch from plywood to oriented strandboard (OSB) has occurred rapidly since its inception in 1982. OSB production exceeded that of plywood production for in first time in 2000 (Structural Board Association, 2000). For technologies radically different from conventional practice, or those that increase the first cost of a home, adoption has been more difficult.
One of the perceived obstacles to technology adoption is the real estate appraisal process. Technologies that increase the first cost of a home, but provide benefits such as increased comfort, durability, energy efficiency, etc., may not be reflected in the appraised value of a home resulting in insufficient loan value for the purchase of that home. The prospective homebuyer is left to either subsidize the technology through a higher down payment or choose lower cost conventional technology.
Source (HUD.gov)

Appraiser Independence This Mortgagee Letter provides clarification and reaffirms Federal Housing Administration (FHA) appraisal requirements related to appraiser independence and announces new requirements pertaining to entities that are eligible to order appraisals for FHA insured mortgages.

FHA has long advised lenders and appraisers of the importance of appraiser independence in the context of generally accepted prudent lending practices. In this mortgagee letter, FHA reiterates the importance of appraiser independence, and advises of new requirements regarding who is eligible to request an appraisal from an FHA Roster appraiser. The new requirements set forth in this mortgagee letter will be effective for all case numbers assigned on or after January 1, 2010. The existing requirements will remain in effect.

New RequirementsProhibition of mortgage brokers and commission based lender staff from the appraisal process
Historically FHA prohibited mortgagees from accepting appraisal reports completed by an appraiser selected, retained or compensated, in any manner by real estate agents.
To ensure appraiser independence, FHA-approved lenders are now prohibited from accepting appraisals prepared by FHA Roster appraisers who are selected, retained or compensated in any manner by:
A Mortgage Broker or any member of a lender’s staff who is compensated on a commission basis tied to the successful completion of a loan.

Appraiser Selection in FHA Connection
Lenders are responsible for assuring that the appraiser who actually conducted the appraisal used for the FHA-insured mortgage is correctly identified in FHA Connection
FHA has found that, on numerous occasions, the name of an appraiser in the appraiser log-in screen is not the appraiser who actually completed the appraisal
Lenders who fail to assure that the FHA Connection reflects the correct name of the appraiser will be subject to administrative sanctions

Appraisal and Appraisal Management Company (AMC)/Third Party Organization Fees
FHA does not require the use of AMCs or other third party organizations for appraisal ordering, but recognizes that some lenders use AMCs and/or other third party organizations to help ensure appraiser independence.
FHA-approved lenders must ensure that:
FHA Appraisers are not prohibited by the lender, AMC or other third party, from recording the fee the appraiser was paid for the performance of the appraisal in the appraisal report.
FHA Roster appraisers are compensated at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.
The fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal.
Any management fees charged by an AMC or other third party must be for actual services related to ordering, processing or reviewing of appraisals performed for FHA financing.
AMC and other third party fees must not exceed what is customary and reasonable for such services provided in the market area of the property being appraised.

Source; (Mortgage Training today)