Lately, we’ve heard about the changing role that appraisers have taken in the post-TRID world. We have found that re-inspection by appraisers for corrective action is growing, and the scope of what appraisers are looking at when determining value is expanding. There have been calls to the board office about the appraisers having to act as quasi home inspectors on electrical work, functionality of appliances and more. We want to let you know that it’s not a local issue at all, and in fact is related to a newly released Federal Housing Administration’s (FHA) “Single Family Housing Policy Handbook”. Nationwide, NAR reports that both appraisers and real estate agents have been confused and frustrated by the inclusion of appraiser duties not previously required by FHA. NAR has asked the FHA to reconsider language in the Handbook that requires appraisers to take on home inspection type duties, which are adding delay and confusion to the homebuying process. The changes in the FHA Single Family Handbook that Tom Soloman (NAR President) requested be changed.
Remove “operate all conveyed appliances and observe their performance”
By far, the majority of criticisms with the Handbook concern new requirements on how to evaluate appliances. According to the Handbook, an appraiser “must operate all conveyed appliances and observe their performance.” NAR members feel the highlighted phrase creates considerable confusion among the homebuyer, the lender, the seller, the appraiser and the real estate agent as to the role of the appraiser. Each party has a different interpretation of the requirement of the appraiser in evaluating appliances as the Handbook does not explain the extent of testing needed to determine if an appliance is operational. NAR members have told us that appraisers are being asked to run washer/dryers and operate stove burners, without any sense of how long to run the washer/dryer or how far up to turn the burner, in order to fulfill FHA requirements. This type of performance evaluation is beyond the normal scope of an appraisal assignment and adds considerable time to the appraisal process. NAR asks that FHA require appraisers to determine whether the conveyed appliances are in a condition to be operated based on a visual observation, by noting connection to an electric or water supply, and remove the instruction to “operate” or “observe their performance.”
Change “observe, analyze and report” to “observe and report”
According to the newly published Handbook, “[t]he Appraiser must observe, analyze and report,” that a property meets HUD’s Minimum Property Requirements (MPR) and Minimum Property Standards (MPS) for safety and soundness purposes. The quoted language is new to the FHA guidelines for appraisals and can be construed to increase the appraiser’s scope of work, such that tasks traditionally undertaken during a home inspection are being covered by the appraisal. This creates an expectation by the borrower and lender that qualified home inspections are taking place as part of an appraisal – but that is simply not the case. NAR urges FHA to change “observe, analyze and report” to “observe and report,” which will remove confusion as to the role of the appraiser. Further, FHA should provide additional clarification that the appraiser is to specifically list the areas where the MPRs and MPSs are not met, including language for any corrections. This will help define the appraiser’s role to all parties involved.
Revise form HUD-92564-CN, For Your Protection: Get a Home Inspection
Since the Handbook was published, NAR members have shared situations in which homebuyers and lenders confuse the role of the appraisal with that of a home inspection. Borrowers and lenders now expect the appraisal to highlight problems in mechanical systems, such as electrical wiring. Other than to determine whether or not an appliance has power, the typical appraiser is not qualified to advise the borrower on the electrical wiring itself. In many cases, a buyer is choosing not to undertake a home inspection in the belief that the appraisal covers the same points. For many FHA homebuyers, a proper home inspection should be a key element in their decision making process and financial considerations. NAR urges FHA to revise form HUD-92564-CN, For Your Protection: Get a Home Inspection, to give consumers a clear understanding of the differences between a home inspection and an appraisal. FHA should consider:
- Changing the paragraph header text “Appraisals are Different from Home Inspections” to “Appraisals are NOT Home Inspections.”
- Changing the paragraph text “An appraisal is different from a home inspection and does not replace a home inspection,” to “An appraisal is not a home inspection and is not an alternative to a home inspection.”
- Adding the text “An appraisal makes sure that the house meets FHA minimum property standards and requirements, which do not include all items reviewed in a home inspection.”
On March 18, 2016, NAR President Tom Salomone sent a letter to the Department of Housing and Urban Development (HUD) concerning the Federal Housing Administration (FHA) Single Family Housing Policy Handbook. NAR is also asking FHA to re-enforce language stressing the difference between an appraisal and a home inspection in form HUD-92564-CN, For Your Protection: Get a Home Inspection.