How new FHA guidelines could cause appraisal costs to increase
On September 14, 2015 the Federal Housing Administration (FHA) came out with a new and updated Single Family Housing Policy Handbook, also known as HUD Handbook 4000.1. This new handbook replaces the old 4150.2 handbook that appraisers have been using.
The new policies in the handbook impose additional responsibilities and liability on the appraiser, which has led many appraisers to increase their prices to reflect the added work and risk involved and some appraisers have even chosen not to do FHA appraisals. I say risk because appraiser’s are being asked to perform a level of inspection similar to what a home inspector would do, however I believe that we should not have to do this because we are not qualified in this area. I’ve been asked how new FHA guidelines could cause appraisal costs to increase so I’m going to share my thoughts on this today.
What are the new FHA guidelines
The bottom line is that appraisers are being asked to perform a level of inspection that goes far beyond their responsibilities as an appraiser and more like what a home inspector would do. Appraisers have intentionally described what they do as a property observation so as to not give the impression that they are performing a home inspection or anything similar to it.
The following items are some differences between the old requirements and the new ones which are giving appraisers the most headache because they cross the line and expose us to more liability.
Full inspection of attics and basements – New FHA guidelines require appraisers to make full inspections of attics and crawlspaces. This means that an appraiser is required to view every area of both of these spaces. By doing this in the attic the appraiser risks stepping through the ceiling and causing damage to the house. In the crawlspace the risk to an appraisers health is threatened due to the possible presence of mold and/or poisonous animals. There is also safety risks involved because of potential electrical problems. While not an appraiser, a story was recently in the news about a serviceman that was electrocuted while crawling underneath a house, so this is definitely a concern.
Verify operation of all appliances conveyed – The appraiser is being asked to verify that all appliances that are being conveyed with the house sale work correctly. This is something that a home inspector typically does and is now being put on the appraiser to do. The time involved in a home inspection is typically longer than that of an appraiser because they are checking the house and its systems in a more thorough manner. They can turn a dishwasher on and let it go through its entire cycle to verify its operation.
An appraisers visit to the property is shorter because it only involves measuring the home, taking pictures and walking through the home and noting the condition and material of construction. The time spent is much shorter so this could potentially double or triple the time the appraiser is at the property.
Report if property can be rebuilt after loss – Appraisers are required to report if a property can be rebuilt after a loss such as a fire, if it is zoned as a legal non-conforming use. This type of research can take a lot of time and effort and some municipalities charge for this information. Again, this can increase the work time and turnaround time for the appraisal report to get back to the lender.
Legal documents – Appraisers must obtain all legal documents available such as warranty deeds, title reports, etc. Agents and loan officers should provide this information to the appraiser so that they do not have to track it down which could add time to the appraisal process.
The impact on appraisal costs
There are more changes to the requirements asked of appraisers, however the ones I’ve discussed here are some of the more notable ones. The main thing that most appraisers see in the changes are increased time requirements and possible liability issues. Because of this the cost of FHA appraisals will most likely increase as a result.
Conclusion
Lenders and agents should communicate with local appraisers to find out what new FHA appraisal fees will be, especially with the new TRID requirements that do not allow room for changes to be made in appraisal fees. FHA appraisal fees will most likely be higher than conventional assignments because of the added requirement and liability involved.
Question
Does this answer all of your questions about the new FHA requirements and their impact on TRID? If not then please leave your questions in the comments section below. I’d like to get your take so let me know your thoughts. Thanks for reading.
If you liked this post subscribe by email (or RSS feed). Thanks for visiting.
I have had quite a few emails lately asking me to join AMCs, so I’m guessing AMCs are feeling a bit desperate right now in light of the changes lately with FHA as well as TRID. I have deleted all the emails, though there is one credit union that has a certain specialty that might be a good fit. Ultimately I do very little lender work on purpose, but I did choose to increase my appraisal fees for FHA because of the increased liability and workload.
I would say that is a great move Ryan, and congrats on all your non lender work.
Great article Tom. It would be nice if fees went up due to the increased liability and scope, but I don’t think they will. Only appraisers making smart business decisions and saying, “No” to low fees will make fees go up. Over the past five to ten years, appraisers have seen many increases in scope of work and liability, but fees have largely remained the same (even with few appraisers and a large demand for appraisals). Large lenders and AMCs simply have too much power over the smaller appraisal companies. I think appraisers have shot themselves in the foot by all the talk and legislation about reasonable and customary fees. Almost all appraisers would agree that fees are too low, but AMCs just keep pointing to fee studies and they say, “Look, this study shows that the fee I’m paying is reasonable and customary.”
I think we may have reached a tipping point Gary. Social media has been around a while but I think there has been a recent increase in the use of it my appraisers and they are using it to make their voices be heard though it. I think this is creating a small shift in the effectiveness of how appraisers are being heard.
Regarding customary and reasonable fees, Louisiana recently had a small victory against Coester VMS because they were paying low fees and I think this will continue to happen in other areas. Appraisers in different forums are stating they will not do FHA appraisals due to the liability and I’ve even seen lenders have negative things to say about the FHA changes.
AMC’s have definitely done a lot to hurt customary and reasonable fees, however we can hope that this will change so that the competent appraisers will return to lender work and get paid what they deserve.