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USDA Home Appraisals

High-quality appraisals are key to ensuring that the Agency obtains adequate security for its loans. This section provides guidance about the types of appraisals that may be needed, when appraisals are required, how they are ordered, and how they must be reviewed.

Requirements for Appraisals

Appraisals must meet the following requirements:

  • Qualified Appraiser: Direct Single Family Housing appraisal assignments will be completed by a state licensed appraiser. Contract appraisers must be licensed (or registered for Non-Resident Temporary Practice) in the state in which the subject property is located. 
  • When using a contract appraiser, the Agency will contract with
    qualified state licensed appraisers that are active on the Appraisal
    Sub Committee website (www.asc.gov). 
  • However, when a contract appraiser is not available at an acceptable
    cost or is unable to complete an appraisal timely, a qualified Agency appraiser may
    conduct the appraisal. For credit transactions that are $100,000 or greater, Agency
    appraiser must possess the same qualifications as those required for contract appraisers,
    except that an Agency appraiser is only required to be certified in one State or Territory
    to perform real property appraisal duties as a Federal employee in all States and
    territories.
  • Standards: All appraisals must comply with the current edition of the Uniform
    Standards of Professional Appraisal Practice (USPAP) available at
    www.appraisalfoundation.org and Agency appraisal requirements.
  • Timelines: The Loan Originator should order appraisals within 3 business days of an
    Agency determination that the property appears to be acceptable. Depending on the
    State, appraisals are conducted by either in-house Agency staff, or private appraisers
    under contract to the Agency. In-house appraisals are to be completed within 7 calendar
    days of receiving the appraisal order. Contract appraisals are to be completed within the
    time specified in the contract or Blanket Purchase Agreement (BPA).
  • Nondiscrimination: The appraiser may not use factors that are discriminatory on the
    basis of race, color, religion, sex, disability, familial status, or national origin in
    conducting the appraisal and valuing the property.
  • Use of Third Party Appraisals: The Agency may use appraisals for which it did not
    contract, including those obtained by participating lending institutions. The Agency
    reviewer should be especially diligent in reviewing these appraisals to ensure they meet
    USPAP and Agency appraisal requirements.

Types of Appraisal Values

Depending on the purpose of the proposed loan, an appraiser will either give the
estimated value of the property in its current condition (the "as is" value ) or, based on
construction plans and specifications, give the estimated value of the property after development
(the "as improved" value). The underwriter will determine the required type of value. The
circumstances under which each type of value is required are as follows:

  • As improved value. Loans for planned new construction or rehabilitation require an
    estimate of the as improved value.
  • As is value. Loans for existing dwellings (including a new construction dwelling that
    has been completed at the time of appraisal) requiring no repairs require an estimate
    of as-is value. As-is value appraisals may also be needed to support a loan servicing
    action or to determine a disposition plan for Real Estate Owned (REO) property.

Appraisal Methods

Real estate appraisers make judgments about a property's value based on many factors,
including location, market conditions, construction quality, and amenities. Single Family
Housing Appraisals require one, two, or three approaches to value, as described below,
depending on the specific assignment.

  • Sales comparison approach. Under this method, the appraiser uses the recent sales
    data of properties that are comparable in location and characteristics to the security
    property in order to estimate a market value for the property.
  • Cost approach. Under this method, the appraiser derives an estimate of value using
    replacement cost estimates for the improvements, less depreciation and an estimate of
    the site value. The appraiser will identify the source of cost estimates, such as
    Marshall and Swift, used in the cost approach. The methodology used to estimate
    depreciation must be stated in the report. This method is required for new properties
    or properties that are less than one year old. The remaining economic life must be
    stated for all properties.
  • Income Approach. Under this method the appraiser derives a value indication for an
    income-producing property by converting its anticipated benefits (cash flows and
    reversion) into property value. This conversion can be accomplished in two ways. One
    year's income expectancy can be capitalized at a market-derived capitalization rate or at
    a capitalization rate that reflects a specified income pattern, return on investment, and
    change in the value of the investment. Alternatively, the annual cash flows for the
    holding period and the reversion can be discounted at a specified yield rate. This method
    may only be used for Agency Non-Program Real Estate Owned Properties.

The appraisal must be completed using Fannie Mae Form1004/Freddie Mac Form 70,
"Uniform Residential Appraisal Report," for all one-unit, single family dwellings; Fannie Mae
Form 1004C/Freddie Mac Form 70B, "Manufactured Home Appraisal Report," for all
manufactured homes; or Fannie Mae Form 1073/Freddie Mac Form 465, "Individual
Condominium Unit Appraisal Report" for all individual condominium units.

When Appraisals Are Needed

An appraisal is always required if the RHS loan is $7,500 or more and the Agency's debt
plus prior liens against the property will exceed $15,000. (Another lender's appraisal is
acceptable when the loan is part of a leveraging strategy under certain circumstances as
described in Chapter 10.) If the total indebtedness against the property is less than or equal to
$15,000, an appraisal is not required if the Loan Originator is confident that the property has
sufficient value to serve as adequate security. Total indebtedness includes any prior liens on the
property. The Loan Originator should include a statement of the property's value in the case file
whenever an appraisal is not completed.

For subsequent loans, no appraisal is required if the loan is less than $7,500 and is for
minimal essential repairs needed to ensure that the dwelling is decent, safe, and sanitary. An
appraisal is not required when a subsequent loan is made to protect the Government's interest,
regardless of the amount. The Loan Originator must include a statement of the estimated
property value in the case file. If the subsequent loan is for $7,500 or more, no appraisal is
needed unless the property will be taken as security and at least 1 of the following conditions
exists:

  • The latest appraisal report of the real estate is over 2 years old;
  • The physical characteristics of the property have changed significantly;
  • The Loan Originator is uncertain of the adequacy of the security; or
  • The subsequent loan is in connection with a transfer of an existing loan.

Appraiser Responsibilities

The appraiser must provide the required estimates of value on the appropriate form. The
appraiser may also be asked to provide a list of repairs deemed essential for the property to be
made decent, safe, and sanitary.

If an appraiser observes potential contamination from hazardous substances, hazardous
wastes, or petroleum products on the property, or obtains other information about such
contamination, that information should be provided to the Agency together with an indication of
its potential impact on the value of the property. The Loan Originator must initiate the due
diligence process by completing a Transaction Screen Questionnaire (TSQ), ASTM E-1528.
The completed TSQ must be sent promptly to the State Environmental Coordinator for further
evaluation and guidance.

In-house appraisers must document comparable sales or complete Form RD 1922-12,
Non farm Tract Comparable Sales Data for each comparable property considered. The in-house
appraiser may use data from existing comparable sales or copies of Form RD 1922-12 in
conducting the sales comparison approach if the information is current and appropriate.

Reviewing Appraisals

Appraisals will be reviewed for accuracy through a combination of administrative review
and random spot-checks by State Appraisal Staff and Field Staff who have been assigned to this
task. If an appraisal is found to be unacceptable by any review, other than a post review, the
original appraiser can make corrections or a new appraisal can be ordered. The appraisal report
must be acceptable before the loan-making process can continue.

Administrative Review

Administrative reviews are performed by the Loan Approval Official. They are to be
performed on all contract appraisals and the contract appraiser's invoice cannot be paid until the
appraisal review is complete. This review determined if there are inconsistencies in the appraisal
report that warrant a future review of the property and the sales contract prior to loan approval,
or if a technical review should be conducted by the staff appraiser prior to paying the appraiser's
invoice. Indicators that a future review may be required consist of the following: 

  • Photos and maps are not consistent with the information provided in the appraisal; 
  • Large variances in actual and effective age are not supported;
  • Comparables are located outside of the subject's market area or they are 
    superior/inferior to the subject warranting adjustments that will inflate the final value; 
  • Sales and Financing concessions are not reported or comparables are
    not properly adjusted when they are reported; 
  • History of the subject property was omitted or not analyzed.
 

Once completed, the form should be signed, dated, and forwarded to the State Appraisal Staff.
The review should be completed as soon as possible, but must be completed within 7 days of
receipt of the appraisal.

Paying for Appraisals

The Agency will charge a $425 fee for each loan application that requires an appraisal.

The Agency may waive the fee for appraisals done for subsequent loans needed to make
minimal, essential repairs necessary to protect the Government's interest, or for leveraged loans
if a participating lender is obtaining an appraisal that is acceptable to the Agency.

If there is a conditional commitment, the appraisal fee should be paid to the contractor at
closing as reimbursement for the cost of the appraisal that was included in the conditional
commitment fee.

 
 
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