Calling all appraisers! We're sharing a reminder that the changes to the FHA appraisal guidelines from HUD are in place as of April 18, 2023. While we all try to keep up with news in our industry, it's worth taking a moment to review the changes, it may save you some time and reduce revision requests.

A quick recap: On January 18, 2023, the U.S. Department of Housing and Urban Development (HUD) announced revisions to Handbook 4000.1, which provides guidelines for FHA appraisals. These revisions aimed to enhance existing guidelines and make various technical edits. One significant change was the elimination of the requirement to include the 1004MC form as an attachment to the appraisal report. This change reflects a streamlined approach to appraisal reporting.

In addition to the removal of the 1004MC requirement, several other minor yet meaningful edits and clarifications were made to FHA appraisal requirements. These include clear statements to be included in the appraisal report when there are no deficiencies of Minimum Property Requirements (MPR) or Minimum Property Standards (MPS). Clarifications were also made regarding the measurement of gross living area and the inclusion of kitchen facilities in every living unit.

Revisions were made to the observation requirements for attics and crawl spaces, removing the language specifying minimum "head and shoulders" access. The appraiser's reporting requirements for properties serviced by dug wells, cisterns, or holding tanks used in conjunction with purchased water were also revised. Furthermore, changes were made to the appraiser's obligation to research and report market conditions, requiring an absorption rate analysis and specific comparable sales and listings.

These changes must be applied to FHA cases assigned on or after April 18, 2023. However, it's important to note that individual lenders may impose additional requirements, known as "overlay" requirements, which go beyond HUD/FHA guidelines. Appraisers should consult with the originating lender to determine if the 1004MC form is still required. The elimination of this form does not negate the appraiser's responsibility to analyze market conditions and factors influencing value.

Here's a bulleted summary of the points mentioned regarding changes and clarifications to the HUD 4000.1 Handbook for appraisals:

Manufactured Housing:

• Existing skirting must be permanently installed for at least one year prior to the case number assignment date.
• The space beneath manufactured homes must be properly enclosed with a continuous wall and allow for proper ventilation.
• Appraisers must complete the cost approach for manufactured housing.

Crawl Space Accessibility:

• Appraisers must report when the crawl space is not safely accessible.
• Appraisals may be completed subject to inspection by a qualified third party if further observation of the inaccessible crawl space area is necessary for determining compliance with Minimum Property Requirements (MPR) and Minimum Property Standards (MPS).

Removal of 1004MC Requirement:

• The requirement for the 1004MC form has been removed.

Minimum Requirements for a Living Unit:

• A clarification has been provided for the kitchen, which now includes a sink with potable running water and a stove utility hookup.

Multiple Living Units - Single Ownership:

• Properties with two to four living units under a single mortgage or ownership may utilize common services (water, sewer, gas, electricity) served by one meter.
• Appraisers should note a deficiency if separate utility service shut-offs are not provided for each living unit, except for common services such as laundry, storage space, or heating.

Rental Comparable Photos:

• Rental comparable photos are no longer required.

Appraisal Validity Period:

• The initial appraisal validity period is 180 days from the effective date of the appraisal report.
• An appraisal update may be performed to extend the validity period beyond 180 days.
• The updated appraisal is valid for one year from the effective date of the initial appraisal report being updated.

Special Airport Hazards:

• Appraisers must identify if the property is located within a Runway Clear Zone or Accident Potential Zone 1 (APZ 1) and consider the effect of airport hazards on marketability when valuing the property.
• Compliance with Department of Defense (DoD) guidelines is required for properties in APZ 1 at military airfields.
• New construction properties located within a Runway Clear Zone are ineligible for FHA insurance.

Individual Water Supply System - Well:

• Appraisers must note deficiencies if a well is located within the foundation walls of an existing dwelling, unless it is recognized and permitted by the local jurisdiction, common for the market area, and does not adversely affect marketability.
• Wells located within the foundation walls are not acceptable for new construction, except in arctic or subarctic regions.
• Appraisers must report when water supply to a property is from dug wells, cisterns, or holding tanks used in conjunction with purchased water, and indicate whether such systems are accepted by the local market.

New Construction:

• Appraisers must document floor plans, plot plans, and necessary exhibits to determine size and level of finish when new construction is less than 90% complete.
• When new construction is 90% or more complete, appraisers must document a list of components to be installed or completed after the appraisal date.

Aloft is a valuation provider in the technology and appraisal firm space. With staff appraisers in multiple metro areas across several states, we stay up-to-date on the changes in valuation requirements across the appraisal landscape. Learn more at www.aloftvaluation.com.