A frequent complaint of appraisers is that they are not home inspectors but familiarity with residential construction is an important tool in the appraiser's arsenal. Knowledge of home construction and related techniques can be accomplished through CE (continuing education) courses and shouldn't place any additional burden on appraisers as they are required to satisfy minimum CE credits each licensing or certification period. There are a number of CE providers who offer courses related to home construction, ranging from a general overview of residential construction to green buildings.
An appraiser, in the course of appraising a home, must make an assessment of the home's condition as well as its quality of construction, and factor in that condition and quality when estimating its value. Such an assessment assumes familiarity with structural techniques and related architectural design as well as interior and exterior finishes and their acceptance by and prevalence in the marketplace. Structural techniques range from post and beam to balloon and platform framing. Design runs the gamut from split foyers and ranchers to 2 story colonials, bungalows and four squares. Exterior finishes can range from concrete stucco and asbestos shingles to wood and vinyl siding. Interior finishes can range from plaster walls to bamboo flooring. Knowing the manner in which these styles and their related structural techniques and finishes weather and age and their acceptability by the marketplace is essential to making an assessment of a home's condition and quality and how specific conditions and/or qualities are treated by the market. Observing FHA Inspection Protocols can assist an appraiser when making an assessment of a home's condition (which encompasses a myriad of components, ranging from the roof to the basement/crawl/supporting slab of a home) as well as its quality of construction.
Another frequent complaint of appraisers is that lenders will "ding" them for calling out what are considered unnecessary repairs. The majority of lenders, in this post housing recession and tightening of standards, want and need an accurate assessment of the condition and quality of construction of the collateral securing a loan. The UAD compliant appraisal reporting forms have six specific condition and quality of construction ratings and it is imperative for the appraiser to accurately reflect the condition and quality of construction of the subject as well that of the comparable sales. Choosing a condition and/or quality of construction rating that doesn't accurately reflect the condition of the subject property or the comparable sales can easily lead to an under or over valuation.
FHA is known, and often maligned, for its inspection protocols which are iconic and for good reason. One of the best known of these protocols is the "head and shoulders" test which dictates that an appraiser must enter (where possible) an attic and/or crawl space, at minimum, by the head and shoulders, whether access is via a scuttle, pull down stairway or crawl access point. Many appraisers scoff at this requirement, saying they are not inspectors and the lender or property owner should hire a home inspector for such a task. If the home has been recently constructed by a competent builder, then such inspections would typically be unnecessary. For most appraisers, however, the typical age of a home being appraised in the course of their practice is decades old and in varying states of repair or disrepair. According to the National Association of Home Builders in a February 5, 2014 article on housing stock in the US (based upon a 2011 American Housing Survey conducted by the Department of Housing and Urban Development), the median age of an owner occupied home is 35 years old. In this survey, the oldest homes were found in the Northeast and the state with the oldest median age is New York, at 57 years. Massachusetts is next at 54. The youngest median age of owner occupied homes is in the state of Nevada, at 19 years, with Arizona next at 23 years old.
As most appraisers know, hidden or not so obvious defects and deficiencies in a home can impact the marketability and value of a home. A home that is 40 or more years of age often is one that has not been updated since its original construction and can pose a host of repair issues that may impact value. FHA's mantra to appraisers in conducting an inspection of a home in the course of an appraisal is to report what is readily observable and inspect all improvements in their entirety, when and where possible. An inspection that is conducted conscientiously will better position the appraiser in assessing both the condition and quality of construction of the home. It's always a good idea for an appraiser, when contacting the homeowner to schedule an inspection date, to let the homeowner know they need access to the entire home and supporting site. It's also good practice to always inquire as to the availability of an improvement location survey of the property and/or home inspection report before visiting the home. A survey can reveal potential encroachment issues and help resolve potential issues related to well and septic, if applicable. A septic system that is in close proximity to a well can pose obvious health issues which quickly translate to marketability issues. Knowing where the septic system is located through a survey can assist an appraiser in looking for signs of failure, such as overly green and verdant vegetation or drainage issues in vicinity of the septic field. Some non FHA lenders want appraisers to comment on the separation distance between wells and septic systems. A home inspection by a reputable and licensed home inspector can be invaluable to an appraiser but its existence doesn't relieve the appraiser of their obligation to conduct a conscientious and thorough inspection.
Functionality testing of the mechanical, plumbing and electrical systems in a home is another hallmark of FHA Inspection Protocols. Such testing entails turning on applicable systems (when possible) to observe their performance but does not mean such an inspection is technically exhaustive. It simply means that an appraiser, when going from room to room in a home, should operate a representative number of lighting fixtures, switches and receptacles in the home (this is where an inexpensive outlet or receptacle tester is invaluable) to determine if everything is in good working order. The same goes for plumbing fixtures. Appraisers should flush the toilet and turn on faucets simultaneously to determine if there is adequate water pressure and flow as well as looking for any leaks or other abnormalities (such as "knocking or hammering" of the pipes). When possible, activate the heating and/or air conditioning systems to determine operability. Although FHA does not require the opening and closing of a representative number of doors and windows in the course of an inspection, difficulties in the opening and closing of doors and windows can point to potential structural issues. This functionality testing only takes a few minutes and can provide the appraiser with a better understanding of the overall condition of the home and avoid potential call backs later on.
Gaining access to an attic, basement or crawl space, along with the ability to take photos, may reveal moisture problems on the underside of the roof sheathing, evidence of structural issues (such as inadequate structural support of the roof), previous fire damage, or water drainage issues in a basement or crawl space. If such potential problems are missed during an inspection, they may surface later on before settlement and can create headaches for the appraiser in responding to queries from the underwriter. The roof is one of the most critical components of a home, in terms of physical and economic life, and a rudimentary knowledge and familiarity with roofing types, ranging from asphalt shingles to standing seam metal roofs and their respective life spans, is essential when evaluating the condition and remaining life of a home's roof.
FHA inspection protocols also dictate that the appraiser assess the supporting site of the improvements in terms of topography and soil conditions and other factors which may impact drainage and the site's ability to support the improvements. For example, homes sited on steep slopes or in areas with soil subsidence can be problematic, in terms of any adverse risk to the collateral, and appraisers would be remiss for failing to clearly identify such condition in the report. FHA cautions appraisers to always be on the alert for external issues which may impact the marketability and value of a property. These issues could be anything from proximity to a landfill or dump to airport noise and related hazards. Knowledge of such external conditions only underscores the need for an appraiser to be geographically competent in the areas in which they practice.
Appraisers are often requested to provide a cost for a repair or cost to cure a deficiency even if the loan isn't FHA insured and, here again, familiarity with residential construction and its cost is essential for an appraiser to provide credible and supportable cost estimates. Appraisers aren't contractors or carpenters but are well served when familiar with the many aspects of home construction and having the ability to reach out to a residential contractor can be invaluable at times.
After nearly 20 years in the real estate industry, Pete Gillispie recently retired from HUD where he was the Deputy Director of HVPD, which is responsible for the management of the FHA Appraiser Roster and real estate valuation policy and appraisal reporting requirements pertaining to one-to-four single-family dwellings as well as the Home Equity Conversion Mortgage (HECM) Program. In addition to his duties at FHA, Pete represented HUD on the Appraisal Subcommittee (ASC) for nearly 6 years and was appointed Chairman of the ASC during his final year with HUD. Pete was also HUD's representative to The Appraisal Foundation Advisory Council (TAFAC) for a period of 9 years. Prior to his government service, Pete worked 18 years as an independent fee appraiser, 12 of which were with an appraisal consulting firm which specialized in the valuation of commercial, industrial and high end residential properties.
Have any comments or would you like to submit content of your own? Email firstname.lastname@example.org