June 3, 2015
The FHA appraisal process is different than the home inspection process. For example, the home inspection is an optional but strongly recommended part of the home buying journey that the borrower is responsible for. You should never purchase a home without hiring a home inspector to review the property. An FHA appraisal–the mandatory, but not exhaustive review of the home–is carried out an an FHA appraiser.
This appraiser, according to HUD 4155.2 Chapter Four, is hired as a third party by the lender. Did you know there are FHA loan rules that guide the lender in how an FHA appraiser is to be chosen? According to Chapter Four, the lender must recognize that not all appraisers are equal in skill or experience.
“An appraiser who is primarily experienced in appraising detached, single family dwellings in one market may lack the knowledge, experience and/or resources for obtaining market data needed to perform quality appraisals on condominiums or manufactured homes in the same market, or on detached, single family homes in another market a short distance away”, for example.
That is why the loan rules in Chapter Four tell the lender, “The lender must select an appropriate appraiser for every assignment, one who has knowledge of the market area, or geographic competency. A lender must not assume, simply because an appraiser is state-certified, that he/she is qualified and knowledgeable in a specific market area or property type.”
The rules also add that it’s the lender’s responsibility to, “determine if an appraisers qualifications, as evidenced by educational training and actual field
experience, are sufficient to enable the appraiser to competently perform appraisals before assigning an appraisal to him/her.” That’s not all–the lender must also avoid conflicts of interest:
“FHA prohibits lenders from accepting appraisal reports completed by an appraiser selected, retained or compensated in any manner by a real estate agent. To ensure appraiser independence, FHA-approved lenders are also prohibited from accepting appraisals prepared by FHA roster appraisers who are selected, retained or compensated in any manner by a third-party sponsored originator or any member of a lenders staff who is compensated on a commission basis tied to the successful completion of a loan.”
As you can see, the appraisal process is more complex than it appears–there is a lot more that goes into finding and using an appraiser than simply hiring one to do the job of reviewing the home you wish to purchase with an FHA loan.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for review.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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