12.5 RESIDENTIAL APPRAISAL REPORTS (06/04/18)

Owned by Marsha Freeman
Last updated: Nov 17, 2018 by Kacey Olson
9 min read

© RHS HB-1-3555 SFH Guaranteed Loan Program Technical Handbook

Approved lenders must ensure appraisals are completed by a qualified appraiser that is independent and objective. Approved lenders are responsible to review all appraisals for integrity, accuracy, and thoroughness, prior to submission of a complete loan application package to USDA. The lender may pass the cost of the appraisal on to the borrower. The appraisal must have been completed within 150 days of loan closing. Appraisals that are older than 150 days prior to loan closing are eligible for an appraisal update as indicated in this Chapter.

A. Qualified Appraiser.
Approved lenders must select qualified and competent appraisers that are properly licensed or certified, as appropriate, in the State in which the property is located. The appraiser must comply with the current edition of the Uniform Standards of Professional Appraisal Practice (USPAP). Lenders may verify that an appraiser is licensed or certified by checking the Appraisal Subcommittee website found at: https://www.asc.gov/Home.aspx.
B. Appraisal Report.

All appraisals must comply with the reporting requirements of USPAP available at www.appraisalfoundation.org. All appraisal reports must include a Market Condition Addendum (Form FNMA 1004MC) and meet the Uniform Appraisal Dataset (UAD) requirements set forth by Fannie Mae and Freddie Mac. To read definitions of condition and quality ratings, refer to the “Fannie Mae and Freddie Mac Uniform Appraisal Dataset Specification Version 1.2” located online at:https://www.fanniemae.com/content/technology_requirements/uad-specificationappendix-d.pdf.The appraiser will determine the appropriate appraisal form for the subject property. Appraisers must utilize appraisal forms acceptable to Fannie Mae, Freddie Mac, HUD, or VA. Applicable forms may include:

  • Uniform Residential Appraisal Report (FNMA Form 1004/FHLMC Form 70) for one unit single family dwellings;
  • Manufactured Home Appraisal Report and addendum (FNMA Form 1004C/FHLMC Form 70B) for all manufactured homes;
  • Individual Condominium Unit Appraisal Report (FNMA Form 1073/FHLMC Form 465) for all individual condominium units.

Appraisal considerations:

  • Appraiser/client confidentiality under USPAP Ethics Rules does not permit the appraiser to discuss the appraisal with anyone other than the client, without the client’s permission. It is recommended, but not required, that USDA/RD be identified as an intended user with the lender in the appraisal report obtained.
  • The market or sales comparison approach is required in all cases. Not less than three comparable sales will be used unless the appraiser provides documentation that such comparable sales are not available. The appraiser must use their knowledge of the area, and apply good judgment in the selection of comparable sales that are the best indicators of value for the subject property.
  • If the appraiser considers the property to be unique, has specialized improvements, is new manufactured housing, or the client requests the cost approach to be completed, the appraiser will identify the source of the cost estimates and will comment on the methodology used to estimate depreciation, effective age and remaining economic life.
  • The income approach is only required if the appraiser determines that it is necessary to develop credible assignment results.
  • An appraisal prepared for REO purposes, loan servicing consideration, or any other purpose other than the guaranteed purchase or refinance transaction is ineligible to be used in the origination of a guaranteed loan. A new appraisal with the intent to arrive at an opinion of value for a purchase transaction must be obtained.

Photographs. Photographs in the appraisal report must be in color and be clear and descriptive to identify the property’s condition and quality. Photographs must clearly represent the improvements, any physical deterioration of the property, amenities, conditions and external influences that may have a material effect on the market value or marketability of the subject property. Lenders who utilize the Agency’s automated underwriting system, GUS, will upload the appraisal report at the Lender Upload Document(s) page as an individual document. An appraisal report with interior and exterior inspection of the subject property must include at least the following:

  • A front view of the subject property;
  • A rear view of the subject property;
  • A street scene identifying the location of the subject property and showing neighboring improvements;
  • The kitchen, main living area, bathrooms, bedrooms;
  • Any other rooms representing overall condition, recent updates, such as restoration, remodeling and renovation;
  • Basement, attic and crawl space;
  • Comparable Sales, listings, and/or pending sales utilized in the valuation analysis must include at least a front view of each comparable utilized;
  • Condominium projects should include additional photographs of the common areas and shared amenities.

Appraisal transfer. An appraisal ordered by another lender for the applicant can be transferred to the lender who will complete the purchase transaction. The initial lender must agree to the transfer of the report. A letter from the initial lender who ordered the appraisal report must be retained in the permanent loan file as evidence the lender transferred the report to the lender completing the purchase transaction. The receiving lender must assume full responsibility for the integrity, accuracy and thoroughness of the appraisal report, including the methods that the original lender used to acquire the appraisal. The appraisal report must be no older than 150 days at loan closing to be valid.

Appraisal update. Lenders may extend the validity period of an appraisal with an appraisal update report that will be no greater than 240 days from the effective date of the initial appraisal report at loan closing (150 days for the original appraisal plus 90 days for the Appraisal Update Report). An original appraisal report can be updated one time with an Appraisal Update Report. The appraisal may be expired at the time the appraisal update is requested. The purpose of an appraisal update request is to determine if the property has declined in value since the effective date of the original appraisal. An update is not eligible to support a higher appraised value of the property.

USPAP considers the term “Appraisal Update” as a business term, but regardless of the nomenclature used, when a client seeks a more current value or analysis of a property that was the subject of a prior assignment, this is not an extension of that prior assignment that was already completed; it is simply a new assignment. Refer to USPAP Advisory Opinion 3 for additional clarification available at www.appraisalfoundation.org.

All Appraisal Update Reports must include a completed Market Conditions Addendum (Fannie Mae Form 1044MC/Freddie Mac Form 71) for the subject property that is reflective of market conditions as of the effective date of the Appraisal Update Report.

USPAP (Advisory Opinion 3) states that there are three ways that the reporting requirements can be satisfied for this type of assignment:

1. Provide a new report without incorporation of the prior report.
2. Provide a new report that incorporates by attachment specified information/analysis from the prior report.
3. Provide a new report that incorporates by reference specified information/analysis from the prior report.

The appraiser may use a pre-printed form or a narrative report to provide the appraisal update, but whichever reporting format is used it must be in compliance with USPAP.

Fannie Mae Form 1004D/Freddie Mac Form 442, “Appraisal Update and/or Completion Report” may be utilized by the lender to report the completion of a repair and/or satisfaction of requirements and conditions noted in the original appraisal report.

Property flipping. It remains the lenders responsibility to ensure any recently sold property’s value is strongly supported when a significant increase between sales occur. The lender must perform a thorough review of the appraisal report to validate and support the property’s value and protect the applicants from possible predatory real estate lending.

C. Agency Review.
The Agency will review appraisals for all guarantee loan requests by completing Form RD 1922-15, “Administrative Appraisal Review.” If the Agency reviewer detects concerns, the appraisal will be referred to a Regional Agency Appraiser for a technical desk or technical field review. Should the Agency licensed appraisers determine the appraisal is not adequate, the lender will be informed of corrections needed prior to issuance of the conditional commitment for loan guarantee. The Lender will be required to correct or complete any appraisal returned by the Agency for corrective action. The Lender is responsible to communicate and initiate corrective action with the appraiser. The corrected appraisal will be subject to the same review process described in this section. The Agency retains the right to determine an appraiser is ineligible based upon their failure to comply with requirements of this section. The Agency will notify the Lender when appraisals completed by ineligible appraisers will no longer be accepted for the SFHGLP.
D. State Director Responsibilities.
The State Director will designate or delegate authority to the Housing Program Director or other qualified personnel to conduct administrative appraisal reviews. Technical appraisal reviews must be completed by an Agency certified or licensed appraiser and need only be licensed or certified in one State or territory to perform real estate appraisal duties as Federal employees in all states and territories. Review appraisers, must have recent, documented appraisal experience or other factors which clearly establish their qualifications as a reviewer.State Directors will determine and establish the training needs for Rural Development staff completing appraisal reviews. The State Director will also assure that an adequate amount of reviews are being completed.
E. Types of Agency Reviews.
There are three types of reviews for appraisals; "Administrative," "Technical Desk" and "Technical Field." An administrative review will be completed for all transactions involving the submittal of an appraisal report. A sufficient number of technical desk and technical field reviews will be completed to ensure the Agency is getting quality appraisals for the Guaranteed Loan Program. An explanation of the review types are as follows:
1. Administrative Reviews 
Administrative reviews are performed by the Agency loan approval official or qualified designee on all appraisals prior to issuance of the Conditional Commitment. This review determines if there are inconsistencies in the appraisal report that may have to be addressed, or if a technical review should be completed by the Agency staff appraiser prior to issuance of the Loan Note Guarantee. Indicators that a technical review may be required will be documented on Form RD 1922-15.
  • Administrative reviews are completed by the Agency on Form RD 1922-15.. This form will be signed, dated, and retained in the Agency file for scanning. This review should be completed prior to issuance of the Conditional Commitment;
  • If there is a deficiency with an appraisal, the loan approval official should communicate the deficiency to the lender. These deficiencies should include items that affect loan security, value conclusions, or unacceptable property conditions.
2. Technical Desk Reviews
A technical review is performed to determine whether the appraisal was complete, was clearly reasoned, and had adequate support for the conclusion of value. Technical reviews are performed by the Agency Appraiser. Technical reviews completed by Agency appraisers must follow current USPAP.
  • Technical desk reviews may be documented in any format that complies with USPAP and is acceptable for use by RD. Technical reviews should be selected in a random method. The percent of files randomly selected will be set by the direction of the SFHGLD. Field offices will be advised of these schedules and any changes;

The State Director will coordinate with Program Support Staff (PSS) in National Headquarters to establish internal management controls and systems to document and substantiate residential appraisal compliance activities, which will be evaluated during State Internal Reviews, Single Family Housing program reviews, or Management Control Reviews. Technical desk review of appraisals received by the agency provide a method of internal control by the appraisal review staff and ensure that appraisals received by the agency are in compliance with USPAP and Agency regulations. State Directors will support completion of technical desk reviews in coordination with PSS to achieve the appraisal quality control requirements of the agency.

A technical review may also be requested by Field staff when problems are detected on the administrative review that cannot or will not be addressed by the submitting lender or original appraiser. These problems must be significant and result in an appraisal which does not support the value conclusion. Field staff will document the nature of their concerns on Form RD 1922-15. The Field staff will then forward the appraisal to the regional agency appraisal review staff or other reviewers for a technical and/or field review prior to approval of the loan.

3. Technical Field Reviews
Field reviews will involve on-site visits to the subject property and the comparable properties used in the report. Field reviews are completed by State Appraisal staff on a random, spot-check basis to determine if the appraiser has followed accepted appraisal techniques and arrived at a logical conclusion.
  • USPAP Standard 3 Review is used for technical field reviews. The reviewer may use any reporting format that complies with USPAP and is acceptable for use by RD. The State Director and the appraisal review staff are responsible for the administration of residential appraisal compliance and training within the geographic jurisdiction of the State Office. Appropriate actions will be initiated by the State Director and appraisal review staff to ensure compliance with USPAP and National Office policies governing the residential appraisal process.
F. Appraisals in Remote Rural Areas, on Tribal Lands, or in Areas Lacking Market Activity.
In remote, rural areas, on Tribal lands, or areas with a lack of market activity, as identified by the State Director, it may be difficult to obtain adequate comparable sales to appraise a property. When the sales comparison approach cannot be developed for a credible opinion or conclusions regarding value, the lender’s appraiser may use other methods in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP) and perform an appraisal without completing the Sales Comparison approach to value. Appraisers must explain the exclusion of the Sales Comparison approach to value and document their efforts to obtain comparable market data along with an explanation for any sales data not used. The primary method that the appraiser is relying on should be summarized to the extent that the user or a review appraiser can understand the reasoning and support of the valuation and conclusions.Remote rural areas are identified by the State Director and are defined as areas with all of the following characteristics:
  • Scattered population;
  • Low density of residences;
  • Lack of basic shopping facilities;
  • Lack of community and public services and facilities; and
  • Lack of comparable sales data.

If the appraiser is using the cost approach, external depreciation based on the remoteness of the site must not be considered; however, factors that impact the site such as immediate proximity to a feedlot, factory, or other similar considerations should be included. If the appraiser is using the income approach, they must explain why the income and expenses used are comparable to the subject property. When a market is established in these areas, the Agency will again require the sales comparison approach to be used.