The FHA appraisal process is very important–it helps establish the fair market value of the home and insures that the home meets minimum standards. Just because a home passes the FHA appraisal process does not mean it is defect-free. It’s the borrower’s responsibility is to hire an independent home inspector for verification of the home’s condition in a more complete way than the appraisal.
FHA loan rules published in HUD 4000.1 establish some guidelines and ground rules for appraisals, lenders, and others who might be in the home loan “food chain”. Did you know that the FHA does NOT set appraisal fees? That’s just one important aspect of the rules for this process found in HUD 4000.1.
“The Appraiser and the Mortgagee or Mortgagee-designated third party will negotiate the appraisal fees and due date. FHA does not establish appraisal fees or due dates.”
When it comes to appraiser integrity, FHA loan rules have certain requirements to keep the lender (or other interested parties) and appraiser from running into conflicts of interest. From HUD 4000.1:
“An FHA Roster Appraiser must avoid conflicts of interest and the appearance of conflicts of interest. To avoid conflicts or the appearance of conflicts:
–no member of a Mortgagees loan production staff or any person who is compensated on a commission based upon the successful completion of a loan; or
–anyone who reports ultimately to any officer of the Mortgagee not independent of the loan production staff and process;
shall have substantive communications with an Appraiser relating to or having an impact on valuation, including ordering or managing an appraisal assignment.”
Furthermore, HUD 4000.1 adds that the FHA appraiser is bound by “…the confidentiality provisions of the USPAP and may not discuss the value or conclusions of the appraisal with anyone other than the Direct Endorsement (DE) underwriter or FHA staff or their representatives.”
FHA rules add that an FHA Appraiser may discuss components of the appraisal, “that influence its quality and value with the DE underwriter who has responsibility for underwriting the case” and that the FHA appraiser is permitted to have contact with “…real estate agents and others, during the normal course of business, to provide property access, information and other market data.”
In cases where an appraiser feels that there’s an attempt to unduly influence his or her work, FHA loan rules make a provision for reporting such activities. “The Appraiser must report attempts to influence independence to firstname.lastname@example.org or by calling1-800-Call FHA.”
“…In addition, the appraiser must report the attempts to HUD OIG Hotline. Mortgagees, Appraisal Management Companies (AMC) and third parties are prohibited from influencing the independence of the Appraiser” or the valuation process. Some of the prohibited activities mentioned in HUD 4000.1 that could unduly influence the appraisal process include but are not limited to:
–withholding or threatening to withhold timely payment or partial payment for an appraisal report;
–withholding or threatening to withhold future business from an Appraiser, or demoting, terminating or threatening to demote or terminate an Appraiser;
–making expressed or implied promises of future business, promotions or increased compensation for an Appraiser
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