Site Visit/Inspection
Inspection versus Observation
(Even the Handbook uses these terms interchangeably):
*Possible Commentary Regarding the FHA Site Visit: It should be noted that the term "inspection" as it relates to the services performed by an appraiser, are merely observations. Any time the word inspection is used in this report it generally means "observation". The appraiser's observations should in no way be construed as anything more than a visual impression of the systems performance that can be carried out by any party without the benefit of specific training or knowledge. The appraiser's visit to the site should not be construed as a Home Inspection. As with the purchase of any real property, a complete home inspection by a qualified home inspector is strongly recommended.
Handbook says: “The Appraiser must note appliances present in the house at the time of observation and indicate whether that appliance is considered Personal Property or Real Property. The Appraiser must operate all conveyed appliances and observe their performance”.
“The Appraiser must notify the Mortgagee of the deficiency of MPR (Minimum Property Requirements) or MPS (Minimum Property Standards) if any conveyed appliances are inoperable”.
*Possible Commentary:
Appliances Considered Real Property (Conveyed):
Range/Oven, dishwasher, garbage disposal, microwave, water heater, HVAC. All appear operational.
-Or-
__________ did not respond to user controls and appears to be inoperable.
“The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if the electrical system is not adequate to support the typical functions performed in the dwelling without disruption, including appliances adequate for the type and size of the dwelling.
The Appraiser must examine the electrical system to ensure that there is no visible frayed wiring or exposed wires in the dwelling, including garage and basement areas, and report if the amperage and panel size appears inadequate for the Property. The Appraiser must operate a sample of switches, lighting fixtures, and receptacles inside the house and garage, and on the exterior walls, and report any deficiencies. The Appraiser is not required to insert any tool, probe or testing device inside the electrical panel or to dismantle any electrical device or control”.
*Possible Commentary:
During the site visit the property was observed for frayed or exposed wires, however this does not mean that there are not frayed or exposed wires that are hidden from sight behind cover plates, in walls, other areas obscured from plain sight. A sample of the switches, light fixtures, and receptacles were operated and found to be functional. The wiring was not tested for proper polarity, wire size, or grounding as that should be left to a qualified professional. The appraiser is not expert in electrical systems or related issues.
And if it applies:
Exposed wiring was noted at _________ and may pose a threat to safety. Correction is required.
The ______ amp electrical panel appears to be undersized for the property. Further evaluation by a qualified electrical contractor is advised.
The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if the plumbing system does not function to supply water pressure, flow and waste removal.
The Appraiser must flush the toilets and operate a sample of faucets to check water pressure and flow, to determine that the plumbing system is intact, that it does not emit foul odors, that faucets function appropriately, that both cold and hot water run, and that there is no readily observable evidence of leaks or structural damage under fixtures.
The Appraiser must examine the water heater to ensure that it has a temperature and pressure-relief valve with piping to safely divert escaping steam or hot water.
If the Property has a septic system, the Appraiser must examine it for any signs of failure or surface evidence of malfunction. If there are deficiencies, the Appraiser must require repair or further inspection”.
*Possible Commentary:
The plumbing system was tested by flushing toilets and operating a sample of the sink faucets. They appear to be functioning, however problems with waste water piping are not generally revealed through this sort of operation and if present, typically would not manifest themselves unless the plumbing is operated through the normal course of occupancy. The water heater is double strapped and has a temperature-pressure relief valve installed. The appraiser is not an expert in plumbing systems or related issues.
Mechanical Components and Utilities
“The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if mechanical systems are not safe to operate; not protected from destructive elements; do not have reasonable future utility, durability and economy; or do not have adequate capacity.
The Appraiser must observe the physical condition of the plumbing, heating and electrical systems. The Appraiser must operate the applicable systems and observe their performance. If the systems are damaged or do not function properly, the Appraiser must condition the appraisal on its repair or further inspection.
If the utilities are not on at the time of observation and the systems could not be operated, the Appraiser must: 1. render the appraisal as subject to re-observation; 2. condition the appraisal upon further observation to determine if the systems are in proper working order once the utilities are restored; and 3. complete the appraisal under the extraordinary assumption that utilities and mechanical systems, and appliances are in working order.
The Appraiser must note that the re-observation may result in additional repair requirements once all the utilities are on and fully functional.
If systems could not be operated due to weather conditions, the Appraiser must clearly note this in the report. The Appraiser should not operate the systems if doing so may damage equipment or when outside temperatures will not allow the system to operate.
Electrical, plumbing, or heating/cooling certifications may be required when the Appraiser cannot determine if one or all of these systems are working properly”.
Heating and Cooling Systems Permalink
“The Appraiser must examine the heating system to determine if it is adequate for healthful and comfortable living conditions, regardless of design, fuel or heat source.
The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if the permanently installed heating system does not:
· automatically heat the living areas of the house to a minimum of 50 degrees Fahrenheit in all GLAs, as well as in non-GLAs containing building or system components subject to failure or damage due to freezing;
· provide healthful and comfortable heat or is not safe to operate;
· rely upon a fuel source that is readily obtainable within the subject’s geographic area;
· have market acceptance within the subject’s marketplace; and
· operate without human intervention for extended periods of time”.
*Possible Commentary:
The subject has a central air heating/cooling system. The outside air temperature on the day of observation was above 90 degrees. The system was operated in order to observe the systems performance. The furnace was operated only to see if it turns on, but it is not possible to know if the system is operating as intended due to the high outside air temperature. Furthermore, simply operating the furnace would not reveal the possibility of a cracked heat exchanger or fire box, which if cracked would likely allow carbon monoxide to enter the dwelling. The appraiser is not qualified to make such determinations. If any interested party is concerned about the possibility of any dangerous condition regarding the air conditioning system, then further investigation by a qualified HVAC professional is suggested. The cooling portion of the system did lower the air temperature in the dwelling and appears to be functioning. The appraiser is not an expert in Mechanical Systems or related issues.
-Or-
The subject has a central air heating/cooling system. The outside air temperature on the day of observation was below 65 degrees. The A/C was not operated due to the low air temperature as doing so would give not give any indication of the systems effectiveness and could damage the unit. The furnace was operated and produced warm air however, simply operating the furnace would not reveal the possibility of a cracked heat exchanger or fire box, which if cracked would likely allow carbon monoxide to enter the dwelling. The appraiser is not qualified to make such determinations. If any interested party is concerned about the possibility of any dangerous condition regarding the air conditioning system, then further investigation by a qualified HVAC professional is suggested. The heating portion of the system did raise the air temperature in the dwelling and appears to be functioning. The appraiser is not an expert in Mechanical Systems or related issues.
The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if the roof covering does not prevent entrance of moisture or provide reasonable future utility, durability and economy of maintenance and does not have a remaining physical life of at least two years.
The Appraiser must observe the roof to determine whether there are deficiencies that present a health and safety hazard or do not allow for reasonable future utility. The Appraiser must identify the roofing material type and the condition observed in the “Improvements” Section of the report.
The Appraiser must report if the roof has less than two years of remaining life, and make the appraisal subject to inspection by a professional roofer.
When the Appraiser is unable to view the roof, the Appraiser must explain why the roof is unobservable and report the results of the assessment of the underside of the roof, the attic, and the ceilings.
*Possible Commentary:
The roof covering appears to be intact however portions of the roof are not visible from the ground. The appraiser did not go on the roof. No obvious signs of moisture penetration are apparent through casual observation. The roof appears to have adequate remaining life expectancy however the appraiser is not qualified to make any determinations regarding the actual life expectancy of the roofing system. Roof systems can have hidden defects that may not manifest themselves until they are subjected to heavy rains. The ________________ area may not experience heavy rain for months at a time. A qualified roof professional could make better determinations regarding the integrity of the roof.
Structural Conditions Permalink
The Appraiser must report on structural conditions so that the Mortgagee can determine if the foundation and Structure of the Property will be serviceable for the life of the Mortgage.
The Appraiser must perform a visual observation of the foundation and Structure of the improvements and report those results. If the Appraiser notes any structural issues, the Appraiser must address the nature of the deficiency in the appraisal where physical deficiencies or adverse conditions are reported and require inspection.
The Appraiser must examine the foundation for readily observable evidence of safety or structural deficiencies that may require repair. If a deficiency is noted, the Appraiser must describe the nature of the deficiency and report necessary repairs, alterations or required inspections in the appraisal where physical deficiencies or adverse conditions are reported.
If the dwelling or related improvements were built after 1978, the Appraiser must report all defective paint surfaces on the exterior and require repair of any defective paint that exposes the subsurface to the elements.
If the dwelling or related improvements were built on or before December 31, 1978, refer to the section on Lead-Based Paint.
*Possible Commentary:
The subject was built prior to 1978. Paint used before 1978 likely contained lead. Lead poisoning can occur through exposure to defective paint coatings. No peeling paint was observed on the day of inspection however paint can begin peeling at any time. Defective paint surfaces should be maintained in order to protect against the possibility of lead poisoning.
-Or-
The subject was built prior to 1978. Paint used before 1978 likely contained lead. Lead poisoning can occur through exposure to defective paint coatings. Peeling paint was observed at __________. Defective paint surfaces must be maintained in order to protect against the possibility of lead poisoning. This appraisal is made “subject to” satisfactory repair of the peeling paint..
Attic Observation Requirements Permalink
“The Appraiser must observe the interiors of all attic spaces. The Appraiser is not required to disturb insulation, move personal items, furniture, equipment or debris that obstructs access or visibility. If unable to view the area safely in their entirety, the Appraiser must contact the Mortgagee and reschedule a time when a complete visual observation can be performed, or complete the appraisal subject to inspection by a qualified third party. In cases where access through a scuttle is limited and the Appraiser cannot fully enter the attic, the insertion of at least the head and shoulders of the Appraiser will suffice.
If there is evidence of a deficient condition (such as a water-stained ceiling, insufficient ventilation, or smell of mold), the Appraiser must report this condition, and render the appraisal subject to inspection and repairs if necessary.
If there is no access or scuttle, the Appraiser must report the lack of accessibility to the area in the appraisal report. There is no requirement to cut open walls, ceilings or floors.
An observation performed in accordance with these guidelines is visual and is not technically exhaustive”.
*Possible commentary when access is limited:
Access through the scuttle is limited and the appraiser was not able to fully enter the attic. A limited a head and shoulders observation from the scuttle was performed. An observation performed in accordance with HUD guidelines is visual and is not technically exhaustive. No adverse conditions were noted but observation of the entire attic was not possible from the scuttle.
Crawl Space Observation Requirements per 4000.1: Permalink
The Appraiser must visually observe all areas of the crawl space and notify the Mortgagee of the deficiency of MPR and MPS when the crawl space does not satisfy any of the following criteria: The floor joists must be sufficiently above ground level to provide access for maintaining and repairing ductwork and plumbing. If the crawl space contains any system components, the minimum required vertical clearance is 18 inches between grade and the bottom of the floor joists. The crawl space must be properly vented unless the area is mechanically conditioned. The crawl space must be free of trash, debris, and vermin. The crawl space must not be excessively damp and must not have any water pooling. If moisture problems are evident, a vapor barrier and/or prevention of water infiltration must be required.
The Appraiser must report any evidence that may indicate issues with structural support, dampness, damage, or vermin that may affect the safety, soundness and security of the Property.
In cases where access through a scuttle is limited, and the Appraiser cannot fully enter the crawl space, the insertion of at least the head and shoulders of the Appraiser will suffice. If there is no access to the crawl space but there is evidence of a deficient condition (such as water-stained subflooring or smell of mold), the Appraiser must report this condition and the Mortgagee must have a qualified third party perform an inspection. .
*Possible commentary when access is limited:
A limited head and shoulders observation of the crawl space was made from the scuttle opening. Access through the opening is limited as there is low clearance in the crawl space, so the appraiser was not able to fully enter the space. A head and shoulders observation from the scuttle opening was performed. An observation performed in accordance with HUD guidelines is visual and is not technically exhaustive. No adverse conditions were noted but observation of the entire crawl space was not possible from the scuttle.
Onsite Sewage Disposal Systems (Septic System) Permalink
Definition:
An Onsite Sewage Disposal System refers to wastewater systems designed to treat and dispose of effluent on the same Property that produces the wastewater.
Required Analysis and Reporting:
The Appraiser must note the deficiency of MPR or MPS and notify the Mortgagee if the Property is not served by an off-site sewer system and any living unit is not provided with an Onsite Sewage Disposal System adequate to dispose of all domestic wastes in a manner that will not create a nuisance, or in any way endanger the public health.
The Appraiser must visually inspect the Onsite Sewage Disposal System and its surrounding area. The Appraiser must require an inspection to ensure that the system is in proper working order if there are readily observable signs of system failure. The Appraiser must report on the availability of public sewer to the site.
The Appraiser must note the deficiency of MPR or MPS and notify the Mortgagee if the Appraiser has evidence that the Onsite Sewage Disposal System is not sufficient.
*Possible Commentary:
The subject has an underground septic system, no obvious signs of failure are noted however being underground, a septic system could have issues that may not be readily apparent. It is always a good idea to have any septic system tested for proper operation by a qualified professional. Public Sewer connection is / or is not available for the subject site (be sure to verify this).
Individual Water Supply Systems (Wells) Handbook 4000.1 Page 494 Permalink
Definition:
An Individual Water Supply System refers to a potable water source providing water to an individual Property.
Standard
When an Individual Water Supply System is present, water quality must meet the requirements of the health authority with jurisdiction. If there are no local (or state) water quality standards, then water must be potable, which may be demonstrated by compliance with the current EPA Manual of Individual and Non-Public Water Supply Systems.
Soil poisoning is an unacceptable method for treating termites unless satisfactory assurance is provided that the treatment will not endanger the quality of the water supply.
Required Analysis and Reporting:
When the Appraiser obtains evidence that any of the water quality requirements are not met, the Appraiser must notify the Mortgagee and provide a cost to cure.
Conditions for Individual Water Supplies
The Appraiser must note the deficiency of MPR or MPS if the subject Property contains a well located within the foundation walls of an existing dwelling and there is no evidence that the local jurisdiction recognizes and permits such a location, that it is common for the market area, and does not adversely affect marketability unless the well is located within the foundation walls of a New Construction dwelling in an arctic or sub-arctic region.
The Appraiser must report when water to a Property is supplied by dug wells, cisterns or holding tanks used in conjunction with water purchased and hauled to the site. The Appraiser must report whether such systems are readily accepted by local market participants and that the water supply system may violate MPR or MPS.
The Appraiser must note the deficiency of MPR or MPS if the subject Property has a water source that includes a mechanical chlorinator or is served by springs, lakes, rivers, sand-point or artesian wells.
A pressure tank with a minimum capacity of 42 gallons must be provided. However, pre-pressured tanks and other pressurizing devices are acceptable if delivery between pump cycles equal or exceed that of a 42-gallon tank. Tanks must be equipped with a clean-out plug at the lowest point and a suitable pressure relief valve.
Required Analysis and Reporting:
The Appraiser must note any readily observable deficiencies regarding the well and require test or inspection if any of the following apply: the water supply relies upon a water purification system due to the presence of contaminates; corrosion of pipes (plumbing); areas of intensive agricultural uses within one quarter mile; coal mining or gas drilling operations within one quarter mile; a dump, junkyard, landfill, factory, gas station, or dry cleaning operation within one quarter mile; or an unusually objectionable taste, smell, or appearance of well water.
The Appraiser must also be familiar with the minimum distance requirements between private wells and sources of pollution and, if discernible, comment on them. The Appraiser is not required to sketch or note distances between the well, property lines, septic tanks, drain fields, or building Structures but may provide estimated distances where they are comfortable doing so. When available, the Appraiser should obtain from the homeowner or Mortgagee a copy of a survey or other documents attesting to the separation distances between the well and septic system or other sources of pollution.
*Possible Commentary:
The subject property has a private well typical of the area. Also noted are an expansion tank and holding tank. The water produced by the well is assumed to meet the water quality requirements of the health authority in this jurisdiction. The appraiser is not qualified to make this determination but has no knowledge of, or any evidence that any of the water quality requirements are not met. Also, the appraiser assumes that the well produces enough water to support normal household usage.
If the property has both a well and a septic system, you may want to add additional commentary to address the distance between the two. FHA Handbook 4000.1 says that the well must be at least 50 feet from the septic tank and at least 100 feet from the drain field (sometimes referred to as a leach field), unless the local authority requirements are greater.
-OR-
The subject property has a private well typical of the area. Also noted are an expansion tank and holding tank. The water produced by the well is assumed to meet the water quality requirements of the health authority in this jurisdiction. The appraiser is not qualified to make this determination but has no knowledge of, or any evidence that any of the water quality requirements are not met. Also, the appraiser assumes that the well produces enough water to support normal household usage.
If the property has both a well and a septic system, you may want to add additional commentary to address the distance between the two. FHA Handbook 4000.1 says that the well must be at least 50 feet from the septic tank and at least 100 feet from the drain field (sometimes referred to as a leach field), unless the local authority requirements are greater.
Definition:
A Shared Well refers to a well that services two to four homes where there is a binding Shared Well Agreement between the property owners that meets FHA requirements.
Required Analysis and Reporting:
If the Property has a Shared Well, the Appraiser must report it and note any readily observable deficiencies. The Appraiser must also obtain a Shared Well Agreement and include it in the appraisal report so that the Mortgagee may review the agreement to determine eligibility. The Appraiser must also require an inspection under the same circumstances as an individual well.
Community Water Systems Permalink
Definition:
A Community Water System refers to a central system that is owned, operated and maintained by a private corporation or a nonprofit property owners association.
Required Analysis and Reporting:
If the Property is on a Community Water System, the Appraiser must note the name of the water company on the appraisal report.
The Appraiser must report on the availability of connection to public and/or Community Water System or sewer system, and any jurisdictional conditions requiring connection.
Reporting
Intended Use/Intended User:
(The following comment was copied from the new handbook)
The intended use of this appraisal is solely to assist FHA in assessing the risk of the Property securing the FHA-insured Mortgage. FHA and the Mortgagee are the intended users of the appraisal report. The FHA Appraiser does not guarantee that the Property is free from defects. The appraisal establishes the value of the Property for Mortgage insurance purposes only.
Keep in mind that forms 1004 and 1073 say this:
INTENDED USE: The intended use of this appraisal report is for the lender/client to evaluate the property that is the subject of this appraisal for a mortgage finance transaction.
And,
INTENDED USER:
The intended user of this appraisal report is the lender/client.
And finally:
This appraisal report is subject to the following scope of work, intended use, intended user, definition of market value, statement of assumptions and limiting conditions, and certifications. Modifications, addition, or deletions to the intended use, intended user, definition of market value, or assumptions and limiting conditions are not permitted. However, additional certifications that do not constitute material alterations to this appraisal report, such as those required by law or those related to the appraiser’s continuing education or membership in an appraisal organization, are permitted.
Clarifications of Intended Use/Intended User are permitted by USPAP provided they do not conflict with the Intended Use/User statement in these forms (which cannot be changed).
Three Year Sales History for subject and comps: Permalink
One of the significant changes to FHA policy is the requirement for appraisers to complete a three-year prior sales history of the comparable sales and listings used in the appraisal. This is outlined in the Appraisal Report and Data Delivery Guide on page 42. In addition, two sources are recommended for this prior sales history search – local MLS and local public records, at a minimum.
Sales Comparison Approach Permalink
Comparable Data Pool
At the top of page 2 of the 1004 for is the section labeled “Comparable Properties Offered for Sale. The Reporting Guide says: “Enter the number of comparable properties currently offered for sale, including those under contract, within the subject neighborhood together with the price range”.
Many appraisers typically do not include pending sales when calculating the “Total # of Comparable Active Listings” on form 1004MC, so keep in mind that the numbers will be different if you include pending sales in one set of data and not the other.
Cost Approach (Page 46 of the FHA Appraisal Report and Delivery Guide Permalink
While this section has not changed much we feel it is important to reiterate a couple of points. Similar to FNMA guidelines the FHA guide states, “Provide a description of the method used to estimate the site value. If the comparable sales were utilized, provide a summary and analysis of the land sales. If an alternative method of estimating the site value was utilized, such as extraction, allocation, land residual, or Ground Rent capitalization, describe the method utilized and the analysis and support for the conclusion”.
Along with your paid description of DwellingCost.com, you have access to our Site Value Extraction Tool which gives you a quick easy way to extract site value from the comparable sales used in the Sale Comparison Grid of your appraisal report, and generates a report that would help you meet this requirement.
Also, Under the Heading “Source of Cost Data” The Guide states: “Provide the name of the cost service. If electronic version, provide the source and date. Upload as an exhibit into the report when available. If paper version, provide the page numbers of cost tables or factors. The reviewer or reader must be able to replicate”.
Here again DwellingCost.com gives the appraiser a quick easy way to accomplish this. You can try our cost service for free, without obligation, by going to DwellingCost.com.
*The “Possible Commentary” above is provided simply to aid the reader in developing their own commentary as it relates specifically to the subject property. Every situation is different and the commentary necessary to address each situation will differ. If any of the commentary contained herein is used for any reason, DwellingCost.com cannot be held responsible for any errors or omissions that were or were not addressed by the user. The statements are intended to be suggestive in nature and should not be used without the user taking full responsibility for their use.
* DwellingCost.com - Unlimited Reports:Permalink
Limits may apply to the number of uses, analyses or reports. Unlimited “Single user” membership is intended for the business use of one individual. Multiple user licenses are available. Data and/or reports cannot be shared or resold (per the Terms of Use Agreement). If usage is detected that appears to significantly exceed the typical usage of a single individual, DwellingCost.com reserves the right to contact the account holder in order to determine if usage is consistent with the Terms of Use Agreement and/or cancel the account, at any time, with a prorated refund.