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HUD Tightens Appraisal Standards

by Peter G. Miller
December 23rd, 2008

HUD has just come out with a new requirement for FHA mortgages that’s good for both borrowers and the government.

In a just-issued notice to Lenders, HUD says that “all FHA-approved lenders must use state certified appraisers for FHA-insured mortgages.”

At first this may not seem like a big deal, but in fact this notice is very important for several reasons.

First, you have to wonder why appraisers who were not state-certified were allowed to value homes for the purpose of getting an FHA mortgage.

Second, the new rules require appraisers to meet state-mandated standards, standards which very much favor fair pricing. Here’s why:

As I explain to folks, appraisers are paid for the act of appraising. This means they get paid the same fee whether their valuation is high, low, wanted or unwanted. They don’t get more for reaching a certain number or less for a valuation that differs from what a lender, buyer or seller may want.

In other words, if you’re a home buyer you want both an appraisal and a clause in your offer which says if the property does not appraise you can quit the deal without penalty. Speak with a broker or attorney for details and proper language.

The use of an appraiser is very important to buyers — and to lenders — because an appraisal prevents over-paying for a property. This happens because lenders make loans on the basis of the property’s sale price or the greatest value, whichever is less. the parent

The result is that both buyers and lenders want conservative appraisals. For the FHA, good appraisals are the surest way to hold down insurance claims.

Good appraisals are particularly important when it comes to illegal flipping scams. Such deals don’t work without tainted appraisals, so the FHA is right to want valuations from qualified, experienced professionals.

If you’re an FHA borrower you don’t get to pick the appraiser — but you do get to pay the bill. The appraiser is selected by the lender but you should receive a full copy of the appraisal for your records since you’re the one who paid for it.

Be aware that a real estate broker who is helping a client to buy or sell a home cannot provide an appraisal. First, you need a separate license to appraise property and, second, a broker has a stake in the outcome of the transaction and is thus unable to offer an independent valuation. Brokers, however, can offer a “broker price opinion” or a comparative market analysis (CMA). These are useful estimates of market value but cannot be used by lenders to value a home.

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This entry was posted on Tuesday, December 23rd, 2008 at 3:57 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

5 Responses to “HUD Tightens Appraisal Standards”

  1. AZDesertGal Says:

    In reply to the above:
    “In a just-issued notice to Lenders, HUD says that “all FHA-approved lenders must use state certified appraisers for FHA-insured mortgages.”

    At first this may not seem like a big deal, but in fact this notice is very important for several reasons.
    First, you have to wonder why appraisers who were not state-certified were allowed to value homes for the purpose of getting an FHA mortgage.
    Second, the new rules require appraisers to meet state-mandated standards, standards which very much favor fair pricing.”

    THIS IS A BIG DEAL even tho YOU may not think it is. How can you say appraisers non state-certified
    were allowed to value homes? Just becaused we are licensed instead of certified does not make us less of an appraiser. Some of us are even better and pay more attention to detail and providing the lender with an accurate report. We have to meet state standards and provide a fair market value to our clients. As for the person applying for the loan, it is not the responsibility of the appraiser to provide them with a copy of their appraisal even if they paid for it. They are not our client. The lender is and that is the only person we legally can give the appraisal to.

    I suggest unless you are an expert with the appraisal business you not write about this.

    This is a bunch of crap. A licensed appraiser can do just as good and accurate appraisal as a certified appraiser. About 12 years ago FHA decided we all needed to be tested in order to stay on the roster. At that time many appraisers decided not to do this and dropped out. I am one who took the test and have been doing appraisals since 1987. I do FHA appraisals mostly for Sr Citizens doing reverse mortgages. I am semi-retired and count on this income from appraising. I am one of the few who have never received a letter questioning any one of my appraisals. To become certified I will need to take 200 hours of classroom. These classes must be at least 15 hours in length and at the end you must pass a test. Now after this you can pay a fee to the state to take their test. They are in effect forcing me to give up my business as it is too costly for all these courses and tests. After the age of 60 to attend class and takes tests is really a hardship. I really think there should be some exception to this. I think if you have already passed HUD’s test, have no complaints against you then you should not have to go thru all these hoops. Certification is not going to solve any problems for HUD. What it will do is cause them to lose many of the senior appraisers they do have and open it up to others who are not as qualified as most of us are.

  2. Will Handley Says:

    Hey AZDesertGal;

    I don’t think the writer was implying the appraiser should give the appraisal directly to the buyer, just that the buyer should ultimately receive a copy. I perform FHA Compliance Inspections for new home purchases with FHA loans. Although I send the inspection report to the lender, the buyer always receives a copy with the closing docs and or paper work.

  3. KEVEN L EWCOMB Says:

    I AM A US VETERAN. I HAVE BEEN IN THE BUILDING CONSTRUCTION FIELD FOR ABOUT FORTY YEARS. I HAVE AN ASSOCIATES DEGREE IN BUILDING CONSTRUCTION TECHNOLOGY. I WAS AN ARCH. DRAFTSMAN, HAD TO LEARN ALL THE CODES (FHA, VA, HUD, BOCA, MINIMUM PROPERTY STANDARDS, ETC.), WORKED AS A CARPENTER, THEN A CARPENTER FOREMAN AND THEN A BUILDING CONTRACTOR FOR TWELVE YEARS AFTER THAT. TODAY I DO REAL ESTATE APPRAISAL. I HAVE SEEN THE WORK OF A NUMBER OF CERTIFIED APPRAISERS. I HAVE NOT FOUND ONE THAT IS MORE CAPABLE OF APPRAISAL WORK THAN MYSELF. I AM NOT CERTIFIED, BUT I AM FHA APPROVED. I AM MORE THAN QUALIFIED TO DO FHA APPRAISALS. THE NEW RULE WILL TAKE AWAY A CERTAIN AMOUNT OF MY IMCOME. IS THAT WHAT THE FHA AND THE RULE MAKERS DO TO VETERANS?

  4. Joe Licata Says:

    I agree with the last two people, being a licensed appraiser is no less thank being certified, I have found in some and I do mean a lot of examples that I have had other appraisers call me that were Certified and General ask me question about doing FHA becasue they went to school and got there licenses and had no clue how to do FHA. This new law will be nothing but a bunch of crap that will hurt the little guy again by the new for a CHANGE goverement.

  5. SHAWN MCGINN Says:

    HEY EVEN BETTER NEWS TODAY,
    I FINALLY OPTED TO DO ALL THE BS EDUCATION TO BECOME CERTIFIED. I THOUGHT SINCE I WAS ALREADY LICENSED I WOULD ONLY HAVE TO TAKE 50 HRS TO MOVE TO CERTIFIED BUT WAS TOLD BY THE BOARD THAT I NEEDED 125 HRS. DIDN’T SOUND RIGHT TO ME BUT NOT MUCH THEY DO DOES SO I TOOK THE MCKISSOCK 125 HR UPGRADE AND TURNED IT ALL IN AND NOW THE AZ BOARD OF APPRAISAL NOW TELLS ME THAT MY INITAL 75HRS I TOOK TO GET MY LICENSE IS NO GOOD AND I HAVE TO TAKE THEM OVER AGAIN BECAUSE OF THE 2008 CHANGES. THIS IS BECAUSE THE SCHOOL I WENT TO IS OUT OF BUSINESS. SO BASICALLY I HAVE TO TAKE ALL CLASSES OVER AND I HAVE BEEN LICENSED 6 YEARS NOW. WHY DIDN’T THOSE MF’ERS TAKE MY LICENSE AWAY ALL TOGETHER THEN IN 2008 SINCE I AM JUST A LOWLY LICENSED APPRAISER. NO WONDER THIS INDUSTRY IS ALL F$%KED UP.

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