Under the radar - FHA & Energy Efficiency - property appraisals

Appraisers….

This one snuck up on me today (Sept. 10, ’14) … when I was reading the Appraisal Institute’s

Appraiser News Online e-newsletter – article from that.

See further comments below.

Appraisal Institute Lauds FHA for Green Valuation Proposal The Appraisal Institute and the American Society of Farm Managers and Rural Appraisers on Sept. 2 lauded the Federal Housing Administration’s proposal to allow appraisers to utilize residual techniques — such as cost and income approaches — to analyze market reaction to green and energy-efficiency improvements in the absence of comparable sales. The joint AI and ASFMRA comments were submitted in response to a draft Appraisal Handbook issued by the FHA that intends to serve as an update to the current Handbook 4140.2 and will aggregate all agency appraisal polices in one place.

Under the draft handbook, appraisers would be required to analyze and report the

local market acceptance of special energy-related building components and equipment, including solar energy components, high-energy efficiency housing features and components such as geothermal systems and wind powered components. The draft explains that in the absence of sufficient data to perform

a paired sales analysis, the appraiser must consider the cost or income approach to calculate an appropriate adjustment. AI and ASFMRA also suggested that the FHA take a stronger stance on appraiser competency issues, incorporating an approach utilized by Fannie Mae in its seller/servicer guidelines that requires competency before taking the assignment. Further, the organizations urged the FHA to reconsider the appraisers’ role in confirming property eligibility, requiring lenders to provide more information to appraisers and asking appraisers to verify information. The organizations noted that such property verification assignments could be completed by appraisers, saving the lender time and money by avoiding applications that are ineligible for FHA insurance.

On the surface, this appears to be fair … primarily for the property owner/borrower who has

applied for a FHA mortgage loan guarantee.

This appraiser agrees that appraisers who do these kind of assignments must have the appropriate

competency, training and experience. Appraisers are going to have to take specialized ‘green

home’ appraising CE courses as one aspect of increasing their knowledge.

But the back end unintended consequence of this proposal is how much in additional fee will the

appraiser be allowed to charge for providing an ‘approach’ documentation that is Not Required to

be completed by USPAP? The ‘requirement’ to include a CA or IA becomes an additional

assignment condition, added to an already more complicated FHA Scope of Work for FHA

assignments.

Secondly, these ‘approaches’ rely on accurate documentation for various component costs and

analysis of the income stream resulting from the use of various ‘energy efficient attachments’ to

the dwelling … something the average home owner/purchaser/borrower may not have access to or

knowledge of. Yet this proposed REQUIREMENT places the appraiser squarely in the middle

of the bulls eye.

Third, adding this level of detail extends the time requirement for report completion. For these

kinds of assignments, a cheap fee and the desire of a “48 hour turn time” after inspection

probably won’t be realistic. Everybody connected to this kind of assignment is going to have to

realize that the appraiser will need to be properly compensated and is going to need many more

hours or days between assignment acceptance and report submittal … and they are just going to

have to live with that reality. (Appraisers are also going to have to learn to say ‘NO’ and negotiate fees and DD’s when it is appropriate.)

If this just becomes another layer-upon-layer of Scope Creep with no ability to recoup time spent

with an appropriate additional fee for the REQUIRED added reporting documentation, then

FHA may find itself hurting for appraisers willing to commit to this kind of assignment. (Re-read the sentence above.) Dave Towne, AGA, MAA The new ‘home’ for

Certified Residential RE Appraiser Pocket Laser Targets 13+ yrs Experience for use with laser measurers FHA Approved Accredited Green Appraiser Owner / Educator

360-708-1196 Appraiser Education Service

towneappraisals@clearwire.net Quality live appraiser CE education www.towneappraisals.com Mount Vernon, WA For the above 360-708-1196 Appraisal Institute – Practicing Affiliate Member dtowne@fidalgo.net National Association of Appraisers – Member Appraisers’ Coalition of Washington - Member