Confused and Misunderstood

As the Quality Control Manager for a national appraisal management company, I am directly involved with some appraisal matters in need of mediation and resolution.  In most cases, these matters involve either a Loan Officer who is questioning the results of an appraisal report, or an Appraiser who is uncertain about specific underwriting revisions that have been requested.  I have noticed that the root of much of these disputes is generally related to misunderstanding or lack of knowledge related to specific HUD requirements with regard to the appraiser, the appraisal process, or the appraisal report on FHA or Reverse loan files.

A certain amount of misinterpretation is noted on the part of many Loan Officers in regards to HUD requirements surrounding comparable sales utilized in the report, specifically the date of sale and proximity to the subject property.  I have identified confusion due to the fact that a report included comparables that were greater than 6 months old and located more than one mile from the subject property. Because of this, the report is misconstrued as not being HUD credible.  HUD 4150.2 guidance states that comparables that have transferred within the past 6 months are preferred, but does not prohibit an appraiser from utilizing sales that are older so long as detailed commentary related to the need to use older sales is provided in the report.  Only closed/settled sales may be utilized within comparable positions 1, 2, or 3 on the report; and these comparables must have transferred within 12 months of the effective date of the report.

Another wide spread misconception noted among Loan Officers is that HUD has a predetermined limit with regard to the distance of comparable sales from the subject property.  This issue regularly presents itself in cases including manufactured homes that may also be situated on acreage parcels.  HUD’s 4150.2 guidance is that sales or re-sales from within the subject subdivision or project are preferred so long as the builder/developer is not in control of the transactions.  Further, in rural areas, it is not uncommon for these comparable to be located a considerable distance from the subject.  With proper detailed commentary related to the need to use such distant comparables, this is an acceptable practice.  That said, there is no specific maximum distant limit imposed upon the appraiser for comparable sales.  This is not to state that a Lender’s specific guidelines will not place limit on the proximity of comparables; however, it should be noted that these are specific guidelines related to loan eligibility for that particular lender, and not limitations placed upon the appraiser in the analysis of the subject’s market, selection of appropriate comparables, and processing of the appraisal report.  In some cases, comparable sales that meet the specific guidelines of the lender are just not available.  However, this does not mean the Appraiser is unable to appraise the subject property or produce a HUD credible report.

Many Appraisers are confused or are misinformed with regard to deferred items and/or deficiencies that require repair.  HUD 4150.2 guidance states that required repairs must be limited to those that impact the three S’s: Safety, Security, and Soundness.  The health and safety of the property occupants must be insured, the overall security of the property must be upheld, and the structural integrity of the property must be maintained.  If any such condition exists that affects the property in any of these areas, the appraisal report must be conditioned “subject to” and based upon the hypothetical condition that these items will be corrected.  Further, the appraiser is to provide the lender with a detailed list of these required repairs and provide an estimated cost to cure (fix) these items.  Cosmetic or other deficiencies that do not fit into these categories should be mentioned and factored into the overall condition rating for the property, but there should not be any requirement for their repair included in the basis of the report.

The confusion regarding comparable sales is also shared by many Appraisers.  I see some reports with closed/settled comparable sales in positions 1, 2, and 3 that transferred more than one year prior to the effective date of the appraisal report.  HUD 4150.2 guidance states that any comparable sales older than one year must be located in positions 4 and higher on the report, and may be utilized as “additional sales”.  I advise appraisers that despite the position of the comparables in the appraisal report, appropriate weight should be placed on them in the reconciliation of sales data and derivation of value by the Sales Comparison Approach based upon their appropriateness and applicability to the subject property.

The HUD 4150.2 guideline is readily available online at, and is a useful tool relied upon in bridging the gap between Appraisers and Loan Officers.

About the Author
John Golden is the National Quality Control Manager for Landmark Network, Inc.  He is a former certified residential and FHA appraiser and is currently on HUD's 203k consultant roster.

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