January 14, 2011
The appraisal process is one of the most important aspects of the FHA loan process. Once the buyer has applied for an FHA guaranteed loan and has established that he or she is a good credit risk, the next phase of the process–finding a suitable home and making an offer–is directly affected by the appraisal system.
The rules say an FHA-approved appraiser must view the property to establish the fair market value of the home. But there are a number of issues that the buyer should know about–things that affect the process that have nothing to do with the appraisal itself.
One of those issues–the most basic–is the appraiser’s fee. The FHA does not set appraiser fees or regulate the additional expenses such as mileage. According to the FHA, “HUD believes the marketplace best determines what is reasonable and customary in terms of establishing fees for appraisal services. Fees are established and negotiated between the FHA Roster Appraiser and the client whether that is an FHA approved lender, Appraisal Management Company (AMC) or third party.”
The rules DO regulate how much can be charged in one important way–the FHA appraisal fee can not be tied to the outcome of the work. The same amount must be charged regardless if the property does not meet FHA standards, appraises for the asking price of the home, or if the fair market value winds up being higher or lower than the asking price.
The FHA also regulates who can perform the appraisal. There are strict rules designed to prevent conflict of interest–FHA loan applicants should know the rules for their own peace of mind at the very least, but also as a way to recognize irregularities should they occur. FHA rules on conflicts of interest are quite strict; “FHA approved lenders are now prohibited from accepting appraisals prepared by FHA Roster Appraisers who were selected, retained or compensated in any manner by a real estate agent, mortgage broker, or any member of the lenders staff who is compensated on a commission basis tied to the successful completion of the loan.”
Finally, the appraisal is final in most cases. If the outcome of an FHA appraisal do not satisfy the seller or the lender, it is generally prohibited to get a second appraisal for the sole purpose of a better outcome. Sometimes there may be a dispute over the appraisal and the FHA does have an appeal process in place for the right circumstances, but “appraisal shopping” is not allowed.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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