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New FHA appraisal guidelines cause delays, confusion

Veteran Charlotte-area home appraiser Everette “Sonny” Helms has a bone to pick with the Federal Housing Authority over its new – and he says confusing – standards for property valuation.

“They’ve come up with some strange guidelines,” said Helms, owner of Helms Appraisals. “They are requiring the appraiser to check to see if appliances and other things in the home are functioning properly. An appraiser is not qualified to do a home inspection.”

Helms isn’t alone in his complaints about the new standards. According to a report from the National Association of Realtors earlier this month, the FHA’s 2015 changes to its Single-Family Housing Policy Handbook have led to confusion and delays.

All properties bought or refinanced with an FHA loan must be appraised by an appraiser approved by the Department of Housing and Urban Development, according to FHA rules. When an appraiser is working with an FHA-insured loan he not only determines the market value of the property but also inspects it to make sure it meets certain minimum property standards.

It’s this idea of an “inspection” of sorts that is causing the wrinkle for appraisers across the country, according to the NAR report.

“FHA appraisal guidelines are stricter; the standards set the benchmark for appraisals in the industry,” said Gary Eisenbraun, the FHA’s appraisal/technical support branch chief, in the report. “The guidelines are strict though to protect consumers and safeguard FHA’s mortgage insurance fund and taxpayer dollars.”

But for Helms that answer provides no assurance.

“They are trying to make too much out of the appraisers and this is not what appraisers do,” Helms said, adding that he questions whether he is now liable for damage that might be caused when he inspects an appliance that does turn out to be faulty.

Martin Wagar of Wagar & Associates Inc., of Kalamazoo, Michigan, outlined several recent changes to the handbook in the NAR report. But Wagar said that many were not changes to what appraisers are being asked to do – the handbook simply uses more definitive language to describe what steps appraisers “must” do as part of the process. Those steps include operating all conveyed appliances and observing their performance; fully accessing attics and crawl spaces, if possible; reporting if roof coverings are in good condition; noting if any sump pump is properly functioning; and verifying that any pool is operational and does not pose any hazards.

“The appraiser’s job is to observe, analyze and report to the underwriter that the property meets HUD’s minimum property requirements,” said Wagar in the report. “The danger is that consumers can mistake the role of the appraisal for that of an inspection.”

While Helms is at odds with the FHA over the changes, other Charlotte-area inspectors have no problems with them.

“I’ve been an appraiser since 2005 and the new guidelines didn’t faze me at all,” said Steven Stone, owner of Valuation Experts in Indian Trail. “The only major changes are checking on the appliances and that is no big deal. It takes about another five minutes of my time.”

Stone said he had been entering the crawl spaces and attics for some time so that change also didn’t bother him.

“A lot of appraisers were trying to do just the bare minimum of the crawl space and attic inspections. The previous guidelines did say the FHA would prefer you to enter them fully, but that a ‘head and shoulders’ inspection would be sufficient. Now, they are specific that you should enter them.”

Helms, though, finds the process to be antithetical to what appraisers were traditionally expected to do. And he’s had enough of the FHA appraisals.

“I told the lenders to take my name off the list of those who do FHA appraisals,” Helms said. “And my business has gone down because of that.”

Helms explained that an appraisal for a bank is not a rating of a home’s market value; instead, it supports the loan underwriting process.

“In my opinion, an appraisal shouldn’t be a specific number, it should be a range of values. I’m sure that other appraisers are being turned off by this almost inspector-like requirement,” he said.

Stone agreed that he’d seen other Charlotte-area inspectors who dropped out of the FHA game. But for him it was no small amount of money to leave on the table, so he decided to roll with the changes. That plan paid off for him.

“My business from the FHA has gone up about 20 percent because of these changes because other appraisers are turning down the assignment and don’t want to fool with the FHA,” Stone said. And at $400 per FHA inspection, Stone said he is happy to take on the extra work. Compared to last year at this time, Stone said his FHA jobs were up. He did about eight per month in 2015, but now does around 15 per month, he said.

However, he gets that $400 fee on only some of the jobs. Large lenders like Wells Fargo and Bank of America work with home appraisal management companies on the national level and when those companies contract out the work to local appraisers like Stone, he might only see $250 to $300 for an FHA appraisal job.

“A lot of appraisers don’t want to do this extra detail work but not get the entire $400 fee,” Stone said. “It’s these appraisal management firms that are cutting into that business and people don’t care for that.”

For Helms, the FHA changes are just the latest issue facing appraisers – and to him complicating the profession even further hurts the job as a whole, and could impair it in the future.

“You can see that there aren’t any new appraisers coming into this line of work,” Helms said. “About five years ago, Fannie Mae changed their policy so that whenever a loan went into the process the first thing they pulled for the file was the appraisal. And they started nitpicking those appraisals like crazy. I never had a problem – knock on wood – with the appraisal board. I was a member of the Better Business Bureau for many years. But now? There is no reward for the risk appraisers face these days.”

Helms said he is winding down his appraisal work and is spending more time focusing on developing commercial property his family owns around Charlotte and working with property management companies.

Beyond the concerns from appraisers, the NAR report notes that real estate agents, too, are feeling the pinch from the new FHA guidelines.

John Anderson, a Realtor and appraiser with Twin Oaks Realty Inc. in Minneapolis, who spoke about the issue at the NAR meeting, agreed there is confusion about whether and how appraisals are different from home inspections. “There is growing confusion among consumers about whether they also need a home inspection,” he said in the report. “An appraisal makes sure a home meets FHA minimum standard requirements; it is different from a home inspection and does not replace it. Buyers should still get an inspection, and it’s often required by the lender.”

Stone said he always includes a note in his report that a traditional inspection is still needed, but he said that some homebuyers may not quite understand the difference between his FHA minimum requirements appraisal and a home inspector’s report.

“Many appraisers do not put that optional addendum in their report that informs the client that for their protection they need to get an inspection as well,” Stone said. “Appraisers need to put more addendums in their reports to cover their tails. If the appraisers that are complaining actually read the new guidelines from the old guidelines they would see the changes are very minor.”

Still, the NAR report said they were working with the FHA to help alleviate the confusion and hopefully speed up the process.

According to NAR’s most recent Realtor Confidence Index, when reporting about their last contract that went into settlement or was terminated between January and March, 27 percent had delayed settlement, and 7 percent were terminated; of the 27 percent delayed, 18 percent were because of appraisal issues, and of the 7 percent terminated, 5 percent were the result of appraisal problems, the report said.

In March, NAR President Tom Salomone sent a letter to HUD concerning FHA’s handbook. NAR asked the agency to reconsider some of the new language, especially parts that require appraisers take on additional home inspection-type duties that were not previously mandatory.

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