FHA Loans and Appraisals

In order to ensure that FHA receives an accurate and thorough appraisal analysis, the inclusion of comparable listings and/or pending sales is required in appraisals of properties that are located in declining markets. Specifically, the appraiser must:Include a minimum of two active listings or pending sales on the appraisal grid of the applicable appraisal reporting form in comparable 4-6 position or higher (in addition to the three settled sales).Insure that active listings and pending sales are market tested and have reasonable market exposure to avoid the use of over priced properties as comparables. Reasonable market exposure is reflected by typical marketing times for the neighborhood. The comparable listings should be truly comparable and the appraiser should bracket the listings using both dwelling size and sales price whenever possible.Adjust active listings to reflect list to sale price ratios for the market.Adjust pending sales to reflect the contract purchase price whenever possible or adjust pending sales to reflect list to sale price ratios.Include the original list price, any revised list prices, and total days on the market (DOM). Provide an explanation for DOM that do not approximate time frames reported in the Neighborhood section of the appraisal reporting form or that do not coincide with the DOM noted in the Market Conditions Addendum.Reconcile the adjusted values of active listings or pending sales with the adjusted values of the settled sales provided. If the adjusted values of the settled comparables are higher than the adjusted values of the active listings or pending sales, the appraiser must determine if a market condition adjustment is appropriate. The final value conclusion should not be based solely on the comparable listing or pending sales data.Include an absorption rate analysis, which is critical to developing and supporting market trend conclusions, as mandated by the Market Conditions Addendum. For example, assuming 36 sales during a six month period, the absorption rate is 6 sales per month (36/6).Data RequirementsData regarding market trends is available from a number of local and nationwide sources. Appraisers must be diligent in using only impartial sources of data. · The appraiser must verify data via local parties to the transaction: agents, buyers, sellers, lenders, etc. (if the sale cannot be verified by a party then public records or other impartial data source that can be replicated may be used). A Multiple Listing Service (MLS) by itself is not considered a verification source.· Unacceptable data sources include local and national media and other sources considered not readily verifiable. Appraisal results should be able to be replicated.· Known or reported incentives or sales concessions must be noted in the financing section of the grid for any active or pending comparable used.Lender ResponsibilitiesLenders are responsible for properly reviewing the appraisal and determining if the appraised value used to determine the mortgage amount is accurate and adequately supports the value conclusion.Information provided directly from HUD.gov.For more information, please go to http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-09ml.doc