FHA Appraisal Fees To Soar

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The official news from HUD is that consumers will benefit from tough new standards for FHA appraisals, but the real news is that appraisal costs are about to soar, fees that will make FHA loans less interesting to borrowers.

Appraisers in the home buying process can be seen as independent and generally conservative valuators engaged by lenders to assure that properties have a given marketplace worth. A lender will look at the property's selling price and the appraised value, and then finance on the basis of the lower figure.

The new program, says HUD, "requires the appraiser to complete a new three-page form describing the physical condition of a home in unprecedented detail. HUD will give appraisers a handbook explaining the new appraisal standards."

The new standards require appraisers to locate "problems with plumbing, walls, ceilings, roofs, foundations, basements, electrical systems, and heating and air-conditioning systems; soil contamination; the presence of wood-destroying insects; hazards and nuisances near homes (such as oil and gas wells); lead-based paint hazards; and other health and safety problems."

To assure that the 30,000 appraisers who do FHA work will meet government standards, the program includes "the first HUD-mandated testing."

"Appraisers flunking the test will not be certified to do FHA appraisals until they pass the exam," says HUD.

This truly sounds like a great idea. After all, who could possibly be against more consumer protection? And the final version of the HUD effort -- something greatly improved by consultation with industry groups -- is far less onerous than the original plan, an absurd proposal that included jailing appraisers who did not meet HUD standards.

Moreover, one has to ask why the HUD changes are necessary when the VA loan program -- the gold standard of pro-consumer mortgage options, a program which has generated 16 million loans since 1944 -- is heading into the millennium without the need to require home inspection services from appraisers.

Appraisers are nice folks but they do not do home inspections. Home inspectors do home inspections, thus HUD advises that, "under the new initiative homebuyers will be required -- for the first time -- to sign and date a new informational form before they purchase a home with an FHA mortgage. The form advises them in plain English to get a home inspection in addition to an appraisal."

But, to be polite, you can see where this is going, and where this is going won't do much for homebuyers. Here's why:

Appraisers under the HUD plan are being asked to accept new responsibilities entirely outside their traditional practice. They will be required to take tests, and before taking tests they may well need to take various classes.

Now, if you were a lucid professional person who was asked to do more work, meet a higher training standard, and spend more time on each appraisal -- which means the number of appraisals you can handle must decline -- would you ask for:

A. Less money.

B. More money.

C. The same compensation.

Published: June 29, 1999

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Editor's Note: This article reflects the opinions of Peter G. Miller only and not necessarily the views of this or any other publication, organization or Website owner.