Tag Archives: FHA

Should Green Building Be Valued at 100% of Cost?

“Green homes face a red light”  Full Article: CNN Money

I meant to comment on this a while ago, just reread it and it really bothers me.  So I need to comment.  It’s not the lenders, nor appraisers that need to “appreciate the value,” it’s the consumer who drives the market.  If everybody was willing to pay for the green improvement at what it costs, than it would be an open and shut case, because the market would reflect the value at 100% of the market.

There are special loans that allow for the energy savings to be applied to the appraised value.  I blogged on this last month: ““Buyers: Why Green is Worth It” and the Energy Efficient Mortgage Program.”   Lets be real…when somebody builds a house and customizes it with all these great upgrades (granite, high-end cabinets, exotic wood floors, etc.) the overall cost to construct/reproduce does not typically bear out on the market. Many of these items are taste specific and the amenity adjustments given to the comparable sales are derived by the depreciated cost method or reflect the anticipated market response.  Adjustments are not typically supported by the cost to construct.

Not all appraisers are knowledgeable about appraising green features, which is huge problem.  There are different ways to come up with a value.  I blogged about this too: “Appraising Green/Energy Efficient Housing” .   Choosing an Appraiser that is knowledgeable in appraising green features is not even possible anymore…due to new regulations, aka HVCC, lenders can no longer choose the appraiser.   So somebody with no experience with green appraising may be doing the appraisal.

So builders and remodelers need to explain this to their clients. A top builder in my area even has it written in their contract…that the buyer is responsible even if the appraised value comes in low.  I know this creates tension with the buyer because they need to come up with extra funds, this wasn’t too much of a problem in an UP market, but it is now!  Explain it up front so they are at least aware that all those custom upgrades may not appraise out.

So my answer is: IT DEPENDS!

-Just my thoughts.




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“Buyers: Why Green is Worth It” and the Energy Efficient Mortgage Program.

Just finished reading:

I agree, green is worth it.  From the warm fuzzy feeling you get from doing something good for the environment: your LIVING environment and the GLOBAL environment.  Green is good because you could get a TAX credit.  Green is also good because you may quality for an Energy EFFICIENT mortgage.

Did you even know that there are special mortgages designed that allow you to incorporate the price of an energy efficient improvement into your mortgage?  I just took a fantastic continuing education class that went over some details on this type of mortgage.

HUD’s Energy Efficient Mortgage Program:  www.hud.gov/offices/hsg/sfh/eem/energy-r.cfm

1. Can be up to $8,000.  Only certain improvements/items quality.
2. You do not need to qualify for the additional funds (up to $8,000).

3. The appraisal does NOT need to come in $8,000 above.

4. A home audit will be performed.  Many utility companies  can provide.

5. The improvement is done after the loan closes.

Contact your local utility company to learn about audits.  Here’s the link to New Hampshire’s: NH Home Performance with ENERGY STAR®

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This is great news for investors!  FHA is temporarily removing the restriction for investors.  FHA didn’t allow a new buyer to purchase a home that was owned less than 3 months by the seller (typically an investor-aka flipper).  The regulation was for curtailing flipping the property.

This change is a smart move for FHA/HUD because many of the homes being purchased by investors are in pretty poor condition and a typical buyer wouldn’t want to, or just couldn’t, purchase the home.  This allows investors to purchase the property, do the necessary improvements, which will usually help the new buyer get a conventional loan on the property.  Many, and I do mean many of these foreclosed properties don’t quality for conventional lending because they are, well, basically a mess!

Doing a quick search for “Flippers” brought up some very negative comments.  They are looked at as the bad guy and that is just inaccurate.  There is good and bad in every aspect of life, profession, business…you get the point.  Flippers are ultimately just investors.  Just like any other opportunity they are looking for a profit…is that bad?  They are assuming the risk.  A property might look like it just needs a couple cans of paint and new baths, but underneath all that could be a dragon rearing it’s ugly head.  The investor will do their due-diligence, but things are missed, and herein lies the risk.

Moving foreclosures off the market is great.  In this market investors will typically price these properties low for a quicker sale and this helps your first-time homebuyer get a house that’s fixed up and a pretty good deal.  Southern New Hampshire has seen it’s fair share of foreclosures, but it has not been the dominant market.  Arms-length transactions have been the norm.

Just my thoughts…

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I Like Dirt Roads

NotMaintainedEdited.pdfWhat is it about a dirt road that makes your senses sharper?  You have to drive slower and pay closer attention.  The trees are taller, and closer to the road.  The light is filtered from the leaves above, and as the wind blows, it creates movement, almost an ethereal effect.  The understory of the encroaching woods is full of ferns, rotting wood, moist dirt, and life.

OK, out of la-la land! I am an appraiser and need to look at the dirt road a bit different.  The main questions I need to ask myself:

  1. Are dirt roads market accepted in this area?
  2. Is the road town-maintained?

In New Hampshire dirt roads are fairly common, but extra research still needs to be done to determine if there’s an affect on value.   In a town plastered with dirt roads it’s common and the value is not typically affected.  These towns may have more open-space, farms, or conservation areas.  People with horses often prefer dirt roads.  Towns like Mason, Lyndeborough, or Francestown, have many dirt roads.


On the other hand you have places like Bedford and Merrimack.  They are larger towns where dirt roads are not common and therefore would require an adjustment in the sales grid due to not being market accepted.

Marketability aside, dirt roads are dirty, require special equipment to maintain, they are muddy and rutted in the spring, and there is less traction.   If it were a public road the town would maintain it.  If the road is not town maintained it may be difficult to get a loan or insurance on the property.  If the road has a formal, written, and recorded maintenance agreement it should be acceptable to FHA. http://www.hud.gov/offices/hsg/sfh/ref/sfhp1-15.cfm

I like my dirt roads.  Don’t care about a muddy car.  Seeing how far I can slide in a mud pit is fun. It’s all about the senses really.  Sweet smelling, alive, and picturesque…I know the way.  I stop to listen to the brook as it splashes over the boulders.   You want your smooth, carcinogenic asphalt roads.  You want to miss seeing that moose grazing in the wetland because you’re driving too fast.  I understand, really.  I just choose to go the long way.

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Understanding FHA Appraisals

Understanding FHA Appraisals

From FHA: “Required repairs are limited to those repairs necessary to preserve the continued marketability of the property and to protect the health and safety of the occupants.”

When you do FHA appraising you constantly have the 3 S’s in your mind:

1. Safety – Any safety issues need to be fixed.

2. Security – I like to refer to this one as “saleability”.  It basically refers to protecting the FHA insured mortgage by keeping the property in marketable condition.

3. Soundness – Are there any structural problems?  Floor joists rotted, or a leaking roof?

Having the appraiser do a FHA appraisal does not constitute a home inspection and it is always recommended you hire a qualified home inspector.

Here are 12 of the many things your FHA appraiser will look for:

  1. ALL the utilities need to be ON at the time of inspection
  2. Missing floor covering, fixtures, outlet covers, and/or exterior siding
  3. Rotted wood or evidence of infestation
  4. Chipping or peeling paint – if built prior to 1978, possible lead paint issues
  5. Windows not opening or closing – need 2 means of egress from bedrooms
  6. Roof with less than 2 years of economic life or with missing or damaged shingles
  7. Garage must have drywall on any wall adjacent to living areas
  8. Crawl space should be at least 18 inches, with no standing water, or debris in the crawl space
  9. Attic must have insulation and access if there is an attic
  10. HVAC, plumbing, and electrical must function properly
  11. Electric garage door must have a reverse stop
  12. Wells must be located 50′ from septic tank, and 100′ from absorption field.

If the property has any of these issues they need to be cured (fixed) before closing.

HUD 4150.2 Handbook for appraisals.  This is the original bible for appraisers and it is constantly updated by issuance of new Mortgagee Letters…

FHA Appraiser Resources -Bottom right of page.  The Mortgagee Letters are constantly updated and the appraiser needs to keep track of

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