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5 REPORTING THE APPRAISAL

5-0 INTRODUCTION

Accurate and thorough appraisal reporting is critical to the

accuracy of underwriting for the mortgage insurance process. The

need for accuracy is greater for FHA-insured mortgages because

buyers tend to have more limited income and lower equity in the

properties. This chapter presents the requirements for reporting

complete and accurate appraisal information to HUD. An appraisal

performed for HUD/ FHA purposes requires that all sections of the

Comprehensive Valuation Package (CVP) must be completed. The CVP

constitutes the reporting instrument to HUD for FHA-insured

mortgages.

5-1 REPORTING THE APPRAISAL

When the appraisal is completed, submit the CVP and all required

attachments - maps, photographs, sketches, etc. to the lender.

Also, for new and proposed construction, submit the plans,

specifications, construction documents and the completed

builder's certification (Form HUD-92541). Submit the original

package and a complete copy to the lender.

The CVP is required for reporting the appraisal findings,

analyses and conclusions about the observed conditions of the

property. A complete HUD appraisal package includes three parts:

the Uniform Residential Appraisal Report (URAR), the Valuation

Conditions Form and the Homebuyer Summary. These are described

below.

A. PART 1: UNIFORM RESIDENTIAL APPRAISAL REPORT (URAR)

The URAR is the standard appraisal reporting form available

through all lenders. The following are required in

reporting appraisal findings on the URAR:

o All information must be reported consistently with the

HUD protocol in Appendix D of this Handbook.

o All findings must be reported consistent with Standard

2 of USPAP for a summary report.

o All boxes must be filled in and relevant factual data

included, unless specifically noted.

o All calculations must be verified.

o Consistency between the sections must be verified.

1. Departure from HUD Requirements

HUD requirements are presented in this Handbook. Any

departure from these requirements must be explained in

the URAR or as an attachment to the appraisal. Present

the reasoning, the result of such departure and any

additional limitations to the use of the appraisal or

the reported value as a result of this departure.

Departure from USPAP is not permitted for an appraisal

submitted to HUD.

2. Certification

Within the URAR, the appraiser must certify that the

reported value is an unbiased, independent valuation of

the subject property. This certification is consistent

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with that required by USPAP. Of particular importance

is the certification that the appraisal is not based on

any of the following:

o a requested minimum value

o a specific value

o the approval of a loan as indicated

(5-1)

If the appraiser is subject to additional

certifications in developing and reporting the

appraisal, include them in the URAR report. Such

additional certifications may be the result of state

certification requirements in certain jurisdictions or

of relationships with professional appraisal and real

estate organizations.

The assigned appraiser is required to sign the report

making him/her fully and wholly accountable for the

information presented on the URAR and in developing the

appraisal findings. If any party provided significant

professional assistance, name this party on the

certification and note the contribution.

3. Statement of Limiting Conditions

For each appraisal, the URAR includes the standard

limiting conditions. The appraiser must confirm these

limiting conditions and strike any that do not apply.

Also, if there are additional limiting conditions,

clearly state them. If the limiting conditions differ

or are contrary to the limiting conditions stated on

the URAR, fully disclose those limiting conditions and

make them known in the value estimate. Cite any value-

influencing limiting conditions with the report of the

estimate of market value.

The repair conditions reported in the VC segment

of the report constitute a limiting condition for the

development of the appraisal because HUD appraisals

estimate value "as-repaired." The reported estimate

assumes that the noted deficiencies have been

corrected. It is, therefore, important that the

appraiser certify to testing specific systems and

examining all areas of the house to note the

deficiencies.

B. PART 2: VALUATION CONDITIONS FORM

The Valuation Conditions (VC) Form specifically addresses

physical conditions of the property- that may render the

property uninhabitable or cause health and safety concerns.

Note the conditions observed during the walk-through on the

VC form as of the date of appraisal. A home inspection. is

not required to complete the VC. The VC form is divided

into Site and Property Analysis as well as other property

related information.

o VC-1 identifies the site hazards and nuisances that may

render a location ineligible for FHA insurance.

o VC-2 through VC-11 identify the basic structural and

mechanical components of the property and are the bases

for determining if the property is habitable and

eligible for FHA-insured financing.

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(5-1) o VC-12 and VC-13 provide further information on the property.

o The addenda include a provision for current market

assessed value and a summary of estimated repair costs.

Each section must be completed entirely, based on the

instructions in the protocol in Appendix D of this Handbook.

The appraiser must observe the property's components, test

certain basic operations, view areas of the home that may

include adverse conditions and report on readily observed

adverse conditions. In all instances, the observations are

as of the effective date of value, as identified in the VC

and appraisal segments.

o For each item in VC-1, a "YES" renders the property

ineligible for FHA mortgage insurance.

o For each specific item in VC-2 through VC-11, "YES"

indicates a limiting condition on the appraisal subject

to the repair of the deficiency or further inspection.

o For each specific item in VC-2 through VC-11, "NO"

indicates that the appraiser did not observe a

deficient condition.

The appraiser may encounter a negative physical condition

that does not require repair or inspection. In this

instance the appraisal is based upon the existing condition.

"NO" is not a substitute for a home inspection by a

qualified professional home inspector, but merely indicates

that the appraiser did not observe the condition during the

property inspection for valuation purposes.

For both "YES" and "NO" responses, exercise care and

judgment in reporting the extent and the magnitude of the

observed condition. The mere presence of an item may not

require an inspection or repair. Likewise, depending on the

condition observed, a minor observation may prove to be

significant to the soundness of the property. The property

analysis relies heavily on the appraiser's judgment. It is

important to note all considerations as comments for each

Valuation Condition.

For detailed instruction regarding the Valuation Conditions

Form, please see the protocol in Appendix D of this

Handbook.

Appraisals performed for HUD/FHA are not intended to protect

the buyer: they protect HUD. Many homebuyers mistakenly

believe that a HUD appraisal and subsequent inspection is a

guarantee that the property is free from defects when, in

fact, the appraisal only establishes the value of the

property for mortgage insurance purposes. Buyers need to

secure their own home

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inspection through the services of a qualified inspector and

satisfy themselves about the condition of the property. If

available in a timely manner, home inspection reports should

be sent to the appraiser; this affords the appraiser the

opportunity to make valuation adjustments as needed.

C. PART 1: HOMEBUYER SUMMARY

This part summarizes required repairs from the appraiser's

observation of the physical condition. The Homebuyer

Summary intends to protect the homebuyer by informing

him/her of any material conditions that typically make the

property ineligible for FHA mortgage insurance.

> If any of the VC's are marked "YES" in the VC form, the

appraiser must denote it in the appropriate box of the

Homebuyer Summary and explain, in detail, the nature of

the problem.

The summary also includes a notice to the homebuyer

regarding the value of securing a home inspection, by a

qualified inspector.

5-2 ACCESS TO FORMS

The Homebuyer Summary and Valuation Conditions Form are available

electronically from the HUD Internet website:

http://www.hudclips.org.

5-3 RECORD KEEPING

HUD reserves the right to request and review the appraiser's work

files supporting an FHA-insured mortgage at any time and without

prior notice. Appraisers on the FHA Register must comply with

the record-keeping and inspection requirements as a condition of

performing appraisals for FHA-insured mortgages.

A. MINIMUM TERM FOR RECORD KEEPING

The appraiser is required to keep supporting documentation

in addition to a copy of the CVP. These files must be

maintained for five years after the date of preparation or

at least two years after final disposition of any judicial

proceeding in which testimony was given, whichever expires

last. This is consistent with the Record Keeping Rule of

USPAP.

B. DOCUMENTATION FILE REQUIREMENTS

Although there is no prescribed file for-mat or content, the

appraiser's work files must include information to support

all findings, observations and conclusions supporting the

value estimate. The files must indicate the rationale for

adjustments and the market data analyzed in the development

of the appraisal report. The files must include

documentation of the acceptance of the assignment and

historical and factual information, such as photographs and

maps. A sample documentation file index is provided below.

This is not a comprehensive list of information.

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C. SAMPLE DOCUMENTATION FILE

Section Supporting Data

Acceptance of assignment File memorandum

Property Description Legal description

Photographs

Floor plans

Tax map and information

Field notes from inspection

Listing information

Offer to purchase

Neighborhood

Notes from the field visit

Photographs

Demographic data

Cost Approach Relevant Marshall Swift

Valuation

(if applicable) information

Calculations performed

Land Sales detail

Sales Comparison Approach Sale details and photographs

Transaction information

Derivation of adjustments

Interview notes

income approach Market rent comparable

information

(if applicable) Cap rate justification

Historical financial

statements

VC Conditions Noted Photograph of condition

Field notes

Support for any assumed

repairs

Calculation of cost to

repair a VC

condition

Additional Information Surveys

Relevant market data

Other sources of data

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