FHA Friday – Appraising New Construction
When completing an assignment in which the FHA appraisal is of a home under construction or proposed construction there are a few things to be considered.
First off the client will provide the appraiser a copy of the executed sales contract (must be signed by both builder/seller and buyer), plans, specifications, and site, dated no more than 30 days prior to the date of appraisal ordering and documents related to the constructions including plans and exhibits that will assist the Appraiser in what is to be built. We don’t always get all this from the Lender but can certainly get this from the Builder easy enough.
In most cases I find the home is already completed or just in need of some cosmetic finishing in the case of more track developments. Custom homes may sometimes request the appraiser to complete a “subject to” appraisal and follow up with subsequent draw inspections for the Lender to have validation of the progress and stages of the construction.
When new construction is less than 90% complete at the time of inspection the Appraiser must document the floor plan, plot plan, and exhibits necessary to determine the size and level of finish. When the new construction is 90% or more complete the Appraiser must document a list of components to be installed or completed after the date of appraisal.
While inspecting/observing the subject home the Appraiser is looking for compliance relating to the Safety, Soundness, and Security of the home. These items are referred to as Minimum Property Standards (MPRs). This cannot be fully completed until the home has utilities operational.
I typically do not find many issues with MPRs on newly built homes. Occasionally there may be some grading needed as water has to be able to run away from the foundation. For more information on these or any other appraisal related questions feel free to give us a call 480-595-0188.
Author
Paul Johnson | SunPointVMS
Paul began his real estate career while in college by working as a leasing agent renting out student apartments in the early 90’s. His senior year of college obtained his Realtor License in IL and began working for Coldwell Banker. After working at the Chicago Board of Trade by day and Realtor in the evenings and weekends found greater success in the real estate industry. As a Realtor and experiencing a few canceled closings with no commission turned his attention to the appraisal industry. He obtained his license in 1998 and has not looked back.
While there are numerous reasons why you would want to get a residential real estate appraisal, the most common is often in connection to the purchase or sale of a property. The bank or lending institution requires one as a basis of underwriting the loan to be made on the property, often to ensure that they are not lending an inappropriate amount for the real estate in the transaction. Banks and Lenders will always only use Certified Real Estate Appraisers, and so should you!
When you are obtaining insurance on your property, you will also want to get a residential real estate appraisal to establish the value or “substitute cost” for insurance purposes. An Appraisal used for establishing the proper insurance coverage is limited to the reproduction cost of the improvements and an estimate of the replacement cost. This type of property appraisal used to establish the insurable value is typically not the same as the market value, since it doesn’t include the land’s value- which can be a sizable portion of the market value. Another reason to get an Arizona Residential Real Estate Appraisal for Insurance purposes is to file an appeal against the annual appreciation increases insurance companies use, especially if the increase in value determined by the insurer results in an unfair premium increase.
Another often overlooked reason is to settle an estate. Residential real estate appraisals establish the value of property when a death occurs and the real estate is going through the process of probate. The survivors of the deceased who owns property in Arizona will want the value estimate which determines their tax liabilities. Estate appraisals are typically obtained through the attorneys for the estate and not generally by the survivors, although if you are left with this task, it is best to use a only Certified Appraisers that are recommended by lawyers, real estate professionals, lending officers and banks as they are often the most trusted real estate appraisers.
Here are some others:
The Appraisal Standards Board (ASB) sets the rules for performing an appraisal and reporting its results. It promotes the use, understanding and enforcement of the Uniform Standards of Professional Appraisal Practice (USPAP). Federal law requires that real estate appraisals used with federally-related transactions be performed in accordance with USPAP, which contains the recognized standards of practice for real estate, personal property and business appraisal. Since 1992, the Office of Management and Budget (OMB) has required federal land acquisition and direct lending agencies to use appraisals in conformance with USPAP.
Order a Sedona Arizona home appraisal or property appraisal from Sun Point Appraisals, Arizona's most respected real estate appraisal firm. Since 1998, Sun Point has been offering Real Estate Appraisal services to the entire state of Arizona. Sun Point Appraisals offers both commercial and residential Real Estate Appraisals in Sedona. Call us today at (480) 595-0188.
Sedona, Arizona real estate appraisers are said to be very lucky to live in such a beautiful city. Sedona, AZ has so much to offer like scenery that makes your heart sore! Sedona is nestled among some of the most beautiful mountain vistas in the world. When USA Weekend chose their "Most Beautiful Places in America" list, Sedona, Arizona claimed the top spot.
The Real Estate market in Sedona is vibrant and healthy as many people who visit want to call Sedona home. Sun Point Appraisals, Inc., offers Real Estate Appraisals in Sedona as well as surrounding areas. Whether you are looking for a romantic getaway, an active getaway that includes trails for hiking, biking, site seeing, golf, off road jeep rides or hot air balloon rides, Sedona Arizona offers it.
Sun Point Appraisals, Inc., is a residential real property appraisal firm in Scottsdale, Arizona. Sun Point Appraisals, Inc., services the entire state of Arizona as a leading provider of residential valuations. Check your properties market value here.
Whether you need a real estate appraisal in Scottsdale, Phoenix, Mesa, Chandler, Gilbert, Glendale, Cave Creek, Anthem, Flagstaff, Payson, Prescott, or any other city within the state of Arizona, Sun Point Appraisals, Inc., is the company to call (480) 595-0188.
Did you know Scottsdale, Arizona has been named several times as one of the best locations in the United States to call home? Livability.com recently released their list for the best places to live in 2014 with Tempe as No. 44 and Scottsdale as No. 89.
More than 1,700 cities throughout the United States were considered, and 2,000 people were surveyed for the list that is “based on what Americans value most in their communities.”
Livability.com and its partners focused on the access, affordability, choice, and utilization of each city. I can attest that Scottsdale is an absolutely wonderful city to call home. Gorgeous landscape, beautiful weather, fine dining, golf galore and something for everyone.
My idea of the perfect retirement is improving my golf game, taking up a few new hobbies and enjoying a well-deserved break. When Money Magazine set out to find some of the “the 25 best places to retire,” three cities in Arizona made the “top 10” list, Tucson, Prescott and Sun City West. When Forbes did a similar study they named Prescott and Sun City Grand. My pick for the 5 Best Places to Retire in Arizona are based on my interaction with 14 years of real estate experience in Arizona. Enjoy!
As appraisers we are asked a lot about FHA appraisals. Although I am competent enough to answer most questions I often refer them to the HUD website. If you spend some time on their website you can find an overwhelming amount of great information.
FHA guidelines are packed into a few documents, one of which is the 4150.2. A list of good appraisal questions and answers are listed at FHA QUESTIONS.
FHA guidelines require that a house meet basic levels of livability before it can be approved for a FHA backed loan. When an appraiser is at a property they are required to make certain observations. While this is not to be construed as a home inspection the appraiser does have a checklist of sorts to go through. These items from the 4105.2 and associates documents focus on these and are typically reported on a MPR report (minimum property repair). A way to conduct your own preliminary test as to whether a home will pass an FHA appraisal inspection is to use the three S's: Safety, Security, and Soundness. Safety - Perhaps the most common reason a house fails this test is that it was both built prior to 1978 and has some amount of peeling paint. Lead has been found to be harmful if swallowed by pets or humans. Other safety issues come in the form of site hazards, flight paths of runway zones, high powered lines having a fall distance near the home, undesirable topography, outdated well or septic systems, abandoned gas wells, industrial areas, and flood zones. Safety problems within the improvement itself can be seen in areas where there are steps but no handrail, broken glass, exposed outlets or wires, or outdated utilities. Ask yourself if the home would be safe enough for your family? Security - This ought to be a no-brainer, but often a house can be entered via a back door with no lock, a broken door, or a broken window. Sometimes new construction or recent improvement have a section of a wall missing. Whatever the case, a home must be able to be sealed off and locked in order to be called "secure." Lock the home and pretend to be a burglar. If you can get in (without the use of a crowbar or tools), then the home is not secure. Soundness - This is more difficult to detect as faulty construction is sometimes well covered. Leaks, foundation cracks, termite tunnels and holes, a worn roof, and water in the basement or attic often reveal themselves with less than a little bit of looking around. Obvious physical deficiencies are going to be flagged by the appraiser. That is it in a nutshell and its most simplistic terms. Sure, there are broader problems a home could suffer (like proximity to industry, noise, etc.), but these are things that are far less likely. Make sure the home is safe, secure, and sound, then you are unlikely to have any issues with the FHA portion of the appraisal.
If you have any questions on appraisals and/or would like to get an appraisal completed do not hesitate to Sun Point Appraisals, Inc at 480-595-0188.
Appraisals are completed for various reasons.
An appraisal is the act of developing an opinion of value; or an opinion of value. An appraisal can be expressed as a specific amount, as a range of numbers, or as a relationship to a previous value opinion or numerical benchmark.
An appraiser will analyze three differing approaches (Sales, Cost, and Income) for a properties value and place weight (emphasis) on the most appropriate approach for the assignment. The appraiser will collect relevant data from available sources creating a "workfile". This workfile which the appraiser retains for at least 5 years is the actual appraisal. Guidance as to the content of the work file is outlined in The Appraisal Foundations USPAP (Uniform Standards of Professional Appraisal Practice). Following the creation of a workfile the appraiser will create a report. The report is what a consumer or client ordering the appraisal will recieve. This report can be either a form created by FNMA and/or appraisal software vendor or a narrative report. Either type of report will have a similar work file.
If you have further questions on the appraisal process or in need of an appraisal please contact us at 480-595-0188.
Appraisers, me included, have been a little confused by the BPO. This limited valuation service has been used widespread over the past couple years. This product has been keeping some real estate agents busy doing limited appraisals. Not a problem for the real estate agents completing these however a problem for the appraiser getting squeezed out of an occupation. These BPO products are completed at $25 ot $40 each why an appraisal is typically $300 saves the Lenders a significant amount of money. The BPO, from what I understand, is not used to fund financing but rather to assess the valuation of a portfolio and/or real estate at risk of foreclosure.
The appraisal industry lacking in size and political power has not been able to do much to stop this practice. Below is a recent letter written by Governor Christie to the State Senate which may start the ball to roll in the right direction for the appraisal industry.
Here is the letter by Governor Christie to the State Senate from last Monday: To the Senate:
Pursuant to Article V, Section I, Paragraph 14 of the New Jersey Constitution, I am returning Senate Bill No. 2551 (First Reprint) without my approval.
This bill permits licensed real estate brokers and brokersalespersons to prepare a “broker price opinion” or “comparative market analysis.” As defined by this bill, these two different terms cover seemingly same the service: an estimate that details the probable selling price of a particular piece of real property. Currently, New Jersey’s Real Estate Appraisers Act mandates that appraisals of various real properties situated in New Jersey must be performed by State licensed or certified appraisers. The bill seeks to distinguish both “broker price opinions” or “comparative market analyses” from real estate appraisals.
While I appreciate the desire to facilitate additional business for real estate licensees in the State of New Jersey, I am concerned about potential consumer confusion. This bill would explicitly differentiate both “broker price opinions” and “comparative market analyses” from appraisals, so that real estate licensees who are not licensed appraisers could perform these other services.
Determining the precise value of real estate is a complex process, crucial to the sale of a residential home. This bill will unwisely introduce confusion into that process, with sellers struggling to determine when and why to use broker price opinions, comparative market analyses, or appraisals. At a time when New Jersey’s residential home sales are rebounding, and many first-time buyers and sellers are entering the real estate market, upsetting our State’s traditional method of home appraisals demands a clear necessity, and a compelling justification. This bill falls short on both, and accordingly, I herewith return Senate Bill No. 2551 (First Reprint) without my approval.
Respectfully, Chris Christie Governor
Market Conditions for Phoenix Metro.
Market Conditions for Phoenix Metro. - As many of you have come to realize the Phoenix Metro market is again flourishing. Inventory has been consumed by the many buyers and investors. With high demand and limited supply easy economics tells you pricing increases will soon follow. On aggregate values across the "Valley" have seen increases in the 20 to 30% over the same time in 2012. This is predicted to continue despite a recent increase in mortgage interest rates, which were hovering at record lows.
The appraisal industry which had seen dismal volume over a course of two to three years (2009 to mid 2012) began taking off again by mid 2012 and has been staying busy since. Appraisers across the state are pressured only by the pure volume of business which needs to be handled by a dimished number of available appraisers across the state due to a prior down tick in business after the refi boom. Great times for appraisers, if you can handle the work load and crazy hours associated with the upswing!
Angie Johnson, REALTOR® says the Phoenix Metro housing upswing doesn't look to be slowing any time in the near future. Although the month of June brought the highest ever Mortgage Rate Increase in Phoenix Metro Mortgage rates history, let's keep this in perspective. Considering we have been lucky enough to see "the lowest mortgage rates in history," over the last few years, the recent increase isn't all bad. Phoenix continues to lead the nation out of the housing crisis with increased property values.
Sun Point Appraisals, Inc., which serves the Phoenix Metro has been keeping very busy. Although Sun Point Appraisasals, Inc. covers all of Arizona the Market Conditions for Phoenix Metro are such that we continue to grow in appraisal volume each month since June of 2012.
Keep posted for follow up blogs as we analyze other Arizona market conditions.
2012...
Does anyone else feel this is going to be a great year?
One thing we in this industry can all count on is change. This appraisal and financial business is such a important part of the real estate industry that regulation and change has become common place.
I have not been in the industry long, only 15 years, however I feel like a seasoned vet. Many of my colleages are now on to other occupations and the changes and regulation keeps coming. For those of us that have decided to pound it out we hope it is all well worth it in the end.
I like many feel a sense of excitement for this coming year. Sun Point Appraisals has a lot to be excited about and a new outlook for our future. 2011 has introduced us to many new opportunities and many new clients and I look forward to building on those relationships significantly this year. As with any industry over regulated or not it all boils down to service. We are out to blow away the competition and make our clients more faithful and evermore demanding of our services.
Happy New Year!!
H.R. 4173 Dodd Frank Act and how it should effect appraisers
This new bill is to "sunset" the recently enacted Home Valuation Code of Conduct (HVCC). As with much change appraisers sit by and watch and do their best to stay on top of the many changes, both in the financial industry and USPAP.
Somebody needs to create a website for the real estate industry to go to log in and check on the recent changes. HUD alone has many constant changes to our industry in the form of Mortgagee Letters that slip by mostly unnoticed by appraisers.
Many appraisal firms are struggling to find the next assignment and then having to decide whether the fee offered is going to give them any profit at the end of the day. Change has been the one constant over the past few years so appraisers and business owners in real estate have to be constant in their ability to survive and thrive with the change.