September 21, 2019

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FHA Loan Reader Question: Appraisals and “Comparables”

A reader asks, “I am interested in purchasing a log cabin home with 44 acres and I am being told by a lender that FHA requires the comparables must be within a 12 month sale time frame. As you know log cabin homes are not sold that often. Do the comparables have to be within a 12 month time frame like I am being told?”

“Comparables” refers to a benchmark FHA appraisers use to help arrive at the fair market value of the appraised property. The appraiser compares the property to be purchased with an FHA home loan to similar homes in the same market to see what current market values might be for those properties.

In Issue 30 of the official FHA Appraiser Roster Newsletter, comparables are discussed as follows:

“As most appraisals of single family residential properties rely exclusively on the Sales Comparison Approach to value, the selection and verification of comparable sale properties is fundamental to a credible and accurate appraisal, At minimum, comparable sale selection should be based on properties having the same or similar locational and physical characteristics as the subject property. Among other criteria, physical characteristics include style, age, size, utility, condition, amenity level and other dominant features. Comparable sale selection should never be solely based on sales price.”

From that reading, it’s easy to see that an FHA appraiser’s job is a lot more complex than simply seeing how much similar homes are worth and assigning value to the appraised property accordingly. But that doesn’t answer the reader’s question. “Do the comparables have to be within a 12 month time frame like I am being told?”

According to the same FHA Appraiser Roster Newsletter (HUDDoc 30, published in 2011), the answer is as follows:

“Comparable sales should not exceed 6 months from date of sale and, in no cases, may exceed 1 year from date of sale in the first three comparable sale positions. Older comparable sales can be included (after the first three) to demonstrate time adjustments or market acceptance of other features or conditions. The appraiser must verify comparable sales. MLS by itself is not considered a verification source”

Additionally, “Contacting someone with first-hand knowledge of the transaction (listing or selling agent, buyer, seller, etc.) is the preferred method of verification. MLS data may be incomplete and can sometimes be misleading. Verification with a knowledgeable 3rd party is particularly important in cases where sales concessions were made or the condition of the home influenced the contract purchase price. The information provided should permit the reader of the report to replicate the data from the sources cited. A single verification source is permitted if recognized as an industry standard.”

In this reader’s case, it may be a good idea to contact the FHA directly (1-800 CALL FHA) to get some specific advice as the situation is fairly unique. How many other log homes were sold in that area in the last six to 12 months? If the number is low–or nonexistent–the appraiser may have other options or requirements, depending on circumstances.

Do you have a question about FHA home loans? Ask us in the comments section.

Joe Wallace - Staff Writer

By Joe Wallace

July 11, 2012

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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