4150.2, CHG-1
 
                       TABLE OF CONTENTS
 
Paragraph                                                                            Page
 
1    SELECTION OF APPRAISER                                          1-1
 
1-0  INTRODUCTION                                                            1-1
1-1  FHA REGISTER                                                              1-1
     A.   Appraiser Credentials                                                  1-1
     B.   Register Application Process                                        1-1
     C.   Applicant Review)                                                        1-2
     D.   Designation to the FHA Register                                 1-2
1-2  LENDER SELECTION OF THE APPRAISER                  1-3
     A.   Non-Discrimination Policy                                           1-3
     B.   Contractual Responsibility of Appraisers                      1-3
     C.   Communication with Appraisers                                  1-4
     D.   Appraisal Fees                                                             1-4
 
2       SITE ANALYSIS                                                            2-1
 
2-0  INTRODUCTION                                                             2-1
2-1  SITE REQUIREMENTS                                                   2-1
     A.   Neighborhood Definition                                              2-1
     B.   Competitive Sites                                                         2-1
     C.   Definitions - Construction Status                                 2-1
     D.   Economic Trends                                                          2-2
     E.   Land Use Restrictions                                                   2-2
          1.   Zoning                                                                      2-2
          2.   Protective Easement/Covenants                               2-2
          3.   Inharmonious Land Uses                                          2-2
          4.   Natural Physical Features                                        2-3
          5.   Attractiveness of Neighborhood Buildings                 2-3
          6.   Neighborhood Character                                           2-3
          7.   Character of Neighborhood Structures                      2-3
     F.   Community Services                                                      2-3
     G.   Transportation                                                              2-3
     H.   Utilities and Services                                                    2-4
     I.   Neighborhood Change Considerations                             2-4
     J.   Marketability                                                                 2-4
     K.   Small Community Market Preferences                          2-4
     L.   Outlying Sites and Isolated Sites                                   2-4
     M.   Study of Future Utility                                                 2-4
     N.   Consideration of General Taxes and Special
          Assessments                                                                    2-4
          1.   Assessment                                                                2-5
          2.   Special Assessment                                                    2-5
2-2  SPECIAL NEIGHBORHOOD HAZARDS AND NUISANCES          2-5
     A.   Unacceptable Sites                                                          2-6
     B.   Topography                                                                     2-6
     C.   Subsidence                                                                      2-6
     D.   Operating and Abandoned Oil or Gas Wells                    2-7
          1.   Existing Construction                                                 2-7
          2.   New or Proposed Construction                                    2-7
          3.   Abandoned Well                                                          2-7
          4.   Special Case - Proposed, Existing or
               Abandoned Wells                                                         2-8
     E.   Slush Pits                                                                        2-8
     F.   Heavy Traffic                                                                   2-8
     G.   Airport Noise and Hazards                                              2-9
     H.   Special Airport Hazards                                                  2-9
          1.   New and Proposed Construction                                  2-9
          2.   Existing Construction                                                  2-9
     I.   Proximity to High Pressure Gas                                       2-10
 
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4150.2, CHG-1
 
     J.   Overhead High-voltage Transmission Lines                     2-10
     K.   Smoke, Fumes, Offensive Noises and Odors                    2-10
     L.   Flood Hazard Areas                                                         2-11
          1.   New and Proposed Construction                                  2-11
          2.   Existing Construction                                                  2-12
          3.   Condominium                                                              2-12
     M.   Stationary Storage Tanks                                               2-12
 
3    PROPERTY ANALYSIS                                                           3-1
 
3-0  INTRODUCTION                                                                    3-1
3-1  APPRAISAL REQUIREMENTS                                               3-1
3-2  ANALYSIS OF SITE                                                                3-1
     A.   Topography                                                                          3-2
     B.   Suitability of Soil                                                                 3-2
     C.   Off-Site Improvements                                                         3-2
     D.   Easements, Restrictions or Encroachments                          3-2
     E.   Encroachments                                                                     3-2
3-3  ANALYSIS OF PHYSICAL IMPROVEMENTS                          3-3
     A.   Gross Living Area                                                                 3-3
     B.   Basement Bedrooms, Basement Apartments                         3-3
     C.   Design                                                                                   3-3
     D.   Conformity of Property to Neighborhood                               3-4
3-4  REMAINING ECONOMIC LIFE OF BUILDING IMPROVEMENTS    3-5
     A.   Economic Life vs. Physical Life                                              3-5
     B.   Estimation of Remaining Economic Life                                 3-5
     C.   End of Useful Life of Building Improvements                         3-6
3-5  CODE ENFORCEMENT FOR EXISTING PROPERTIES           3-6
3-6  GENERAL ACCEPTABILITY CRITERIA FOR FHA-INSURED MORTGAGES   3-6
     A.   General Acceptability Criteria                                                 3-7
          1.   Subject Property                                                                 3-7
          2.   Hazards                                                                              3-7
          3.   Soil Contamination                                                             3-8
               a.   Septic and Sewage                                                         3-8
               b.   Other Soil Contaminants                                               3-9
               c.   Underground Storage Tanks                                          3-9
          4.   Drainage                                                                            3-9
          5.   Water Supply And Sewage Systems                                   3-9
               a.   Individual Water Supply and Sewage
                    Disposal Systems                                                           3-10
               b.   Unacceptable Conditions                                               3-10
          6.   Wood Structural Components: Termites                            3-11
          7.   Streets                                                                               3-12
          8.   Defective Conditions                                                          3-12
          9.   Ventilation                                                                         3-13
          10.  Foundations                                                                      3-13
          11.  Crawl Space                                                                      3-13
          12.  Roof                                                                                   3-14
          13.  Mechanical Systems                                                          3-14
          14.  Heating                                                                             3-14
          15.  Electricity                                                                          3-15
          16.  Other Health And Safety Deficiencies                                3-15
          17.  Lead-Based Paint And Other Hazards                               3-15
     B.   Other Criteria                                                                         3-16
          1.   Party Or Lot Line Wall                                                       3-16
          2.   Service And Facilities                                                          3-16
 
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                                                         4150.2
 
      5. Water Supply And Sewage Systems                 3-9
           a. Individual Water Supply and Sewage Disposal
Systems    3-10
           b. Unacceptable Conditions                    3-10
      6. Wood Structural Components: Termites            3-11
      7. Streets
  3-12
      8. Defective Conditions                            3-12
      9. Ventilation                                     3-13
      10. Foundations                                    3-13
      11. Crawl Space                                    3-13
      12. Roof
  3-14
      13. Mechanical Systems                             3-14
      14. Heating..                                      3-14
      15. Electricity                                    3-15
      16. Other Health And Safety Deficiencies           3-15
      17. Lead-Based Paint And Other Hazards             3-15
    B. Other Criteria                                    3-16
      1. Party Or Lot Line Wall                          3-16
      2. Service And Facilities                          3-16
      3. Non-Residential Use Design Limitations          3-17
      4. Access Onto Property                            3-17
      5. Space Requirements                              3-17
      6. Bedroom Egress                                  3-17
      7. Energy Efficiency                               3-17
    C. Conditions Not Requiring Repairs                  3-17
    D. REPAIR CONDITIONS FOR NEW/PROPOSED CONSTRUCTION   3-18
 
4 THE VALUATION PROCESS                                  4-1
 
  4-0 INTRODUCTION                                       4-1
  4-1 MARKET VALUE ESTIMATES                             4-1
    A. Definition of Market Value                        4-1
    B. Property Rights Appraised                         4-2
    C. Purpose
  4-2
    D. Intended Use of Appraisal/Function                4-3
    E. Use of the Appraisal                              4-3
    F. Effective Date of Value                           4-3
    G. Scope
  4-3
    H. Special Limiting Conditions and Assumptions       4-3
  4-2 HUD/FHA REQUIREMENTS                               4-3
  4-3 NEW AND PROPOSED CONSTRUCTION REQUIREMENTS         4-4
    A. New Construction                                  4-4
    B. Proposed Construction                             4-4
  4-4 UNIQUE PROPERTY APPRAISALS                         4-5
  4-5 COST APPROACH                                      4-5
    A. Cost Approach Methodology                         4-6
      1. Land Value Estimate                             4-6
      2. Excess Land                                     4-6
 
                              iii
                                                         4150.2
 
      3. Sales Comparison Approach For Land Value        4-6
      4. Alsite
  4-6
      5. Extraction
  4-7
    B. Improvement Cost Estimate                         4-7
    C. Typical Replacement Cost                          4-7
    D. Unusual and Non-Typical Costs                     4-7
    E. Recommended Methodologies                         4-7
    F. Remaining Economic Life                           4-8
  4-6 SALES COMPARISON APPROACH                          4-8
    A. Data Requirements                                 4-8
      1. Sales Data vs. Comparable Sale                  4-8
      2. Selection of Comparable Sales for Analysis      4-8
      3. Excluded Sales Transactions                     4-9
      4. Current Offerings and Listings Analysis         4-9
      5. Sales in Escrow                                 4-9
      6. Distressed Sales                                4-9
      7. Resite Sales                                    4-9
      8. Confirmation of Sales and Transaction Information
  4-10
    B. Adjustment Process                                4-10
      1. Support for Adjustments                         4-12
      2. Explanation of Adjustments                      4-12
      3. Reconciliation of Adjusted Sale Prices          4-12
  4-7 INCOME APPROACH                                    4-12
    A. Data Requirements                                 4-13
      1. Confirmation Of Leases And Transaction Information
  4-13
      2. Adjustment Process                              4-13
      3. The Income Projection                           4-13
    B. Development of Rates                              4-14
  4-8 FINAL RECONCILIATION                               4-14
  4-9 RECONSIDERATION OF APPRAISED VALUE                 4-14
 
5 REPORTING THE APPRAISAL                                5-1
 
  5-0 INTRODUCTION                                       5-1
  5-1 REPORTING THE APPRAISAL                                   5-1
    A. Part 1: Uniform Residential Appraisal Report (URAR)      5-1
      1. Departure from HUD Requirements                 5-1
      2. Certification                                   5-1
      3. Statement of Limiting Conditions                5-2
    B. Part 2: Valuation Conditions Form                 5-2
    C. Part 1: Homebuyer Summary                         5-4
  5-2 ACCESS TO FORMS                                    5-4
  5-3 RECORD KEEPING                                     5-4
    A. Minimum Term for Record Keeping                   5-4
    B. Documentation File Requirements                   5-4
    C. Sample Documentation File                         5-5
 
                               iv
 
                                                  4150.2, CHG-1
 
8-0  DEFINITION                                          8-1
 
8-1  PROPERTY STANDARDS FOR TITLE II MORTGAGE INSURANCE  8-1
8-2  PROPERTY DESCRIPTION                                8-2
8-3
APPRAISER QUALIFICATIONS FOR MANUFACTURED HOMES
      CLASSIFIED AS PERSONAL PROPERTY                    8-2
8-4  MANUFACTURED HOME LOT APPRAISALS                    8-3
     A.   Manufactured Home Lot Sites                    8-3
     B.   How to Perform a Manufactured Home Lot Appraisal8-3
 
9    PLANNED UNIT DEVELOPMENTS AND CONDOMINIUMS          9-1
 
9-0  PLANNED UNIT DEVELOPMENT (PUD)                      9-1
     A.   Approach To Value                              9-1
     B.   Estimate of Market Price                       9-1
9-1  CONDOMINIUMS                                        9-2
     A.   Definitions                                    9-2
     B.   Approach to Value                              9-3
          1.   Sales Comparison Approach                 9-3
 
APPENDIX A: VALUATION OF OTHER PROPERTIES                A-1
 
A-1  REAL ESTATE OWNED (REO)                             A-1
A-2  APPRAISAL OF SINGLE FAMILY HOMES ON NATIVE AMERICAN LANDS
                                                         A-4
 
APPENDIX B: SPECIAL PROGRAMS                             B-1
 
B-1  203(K) REHABILITATION HOME MORTGAGE INSURANCE       B-1
B-2  SECTION 255: HOME EQUITY CONVERSION MORTGAGES
      (REVERSE MORTGAGES)                                B-3
B-3  SECTION 223(E)                                      B-3
B4   TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED
      HOME LOAN PROGRAM                                  B-4
B-5  SOLAR ENERGY                                        B-4
 
APPENDIX C: VALUATION REFERENCES                         C-1
 
C-1  RULES OF ROUNDING                                   C-1
C-2  THE VALUATION PROCESS                               C-3
 
APPENDIX D: VALUATION PROTOCOL                           D-1
 
D-1  RESIDENTIAL APPRAISAL REQUIREMENTS                  D-1
D-2  VALUATION CONDITION REQUIREMENTS                    D-22
D-3  HOMEBUYER SUMMARY                                   D-34
 
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                                                   4150.2 CHG-1
 
        FORMS AND REPORTS REFERENCED IN HANDBOOK 4150.2
 
HUD-92005:                    Description of Materials
 
HUD-92541:                    Builder's Certification
 
HUD-92544:                    Builder's Warranty
 
HUD-92563:                    Roster Appraiser Designation
                              Application (to be updated)
 
HUD-92802:                    Application and Request for
                              Manufactured Home Lot and/or
                              Site Preparation
 
Homebuyer Summary and Valuation Conditions Form
 
Marshall and Swift Form 1007
 
Freddie Mac 704 Form:  Second Property Value Analysis and
Report
 
R.S. Means & Company Repair and Modeling Cost Data Book or the
Home-Tech Remodeling and Renovation Cost Estimator
 
Use of Materials Bulletin No. 100, Subject: HUD Building
Product Standards & Certification Program for Solar Water
Heating Systems-August 15, 1993
 
Marshall & Swift Cost Handbook - New & Proposed Construction
 
Marshall & Swift Guide to Construction Costs
 
Form FW 68: Land Appraisal Report
 
Uniform Standards of Professional Appraisal
 
Permanent Foundation Guide for Manufactured Housing
 
CABO Model Energy Code, 1992 Ed., Residential Buildings
 
                              vi                         6/99
 
        FORMS AND REPORTS REFERENCED IN HANDBOOK 4150.2
 
HUD-92005:
Description of Materials
 
HUD-92541:
Builder's Certification
 
HUD-92544:
Builder's Warranty
 
HUD-92563:
Roster Appraiser Designation Application (to be updated)
 
HUD-92802:
Application and Request for Manufactured Home Lot and/or Site
Preparation
 
Homebuyer Summary and Valuation Conditions Form
 
Marshall and Swift Form 1007
 
Freddie Mac 704 Form: Second Property Value Analysis and
Report
 
R.S. Means & Company Repair and Modeling Cost Data Book or the
Home-Tech Remodeling
and Renovation Cost Estimator
 
Use of Materials Bulletin No. 100, Subject: HUD Building
Product Standards & Certification
Program for Solar Water Heating Systems-August 15,1993
 
Marshall & Swift Cost Handbook - New & Proposed Construction
 
Marshall & Swift Guide to Construction Costs
 
Form FW 68: Land Appraisal Report
 
Uniform Standards of Professional Appraisal
 
Permanent Foundation Guide for Manufactured Housing
 
CABO Model Energy Code, 1992 Ed., Residential Buildings
 
                                   vii
                                                         4150.2
                            FOREWORD
 
PURPOSES OF  These are the purposes of this Handbook:
HANDBOOK
                    o    Provide guidance for appraisers on how to
                appraise existing, proposed and new
                construction of one- to four-family homes for
                which mortgages are to be insured by FHA.
 
                    o    Introduce appraisers to the environment of
                greater accountability associated with recent
                HUD reforms.
 
HOME BUYER   On June 1, 1998, HUD launched the HomeBuyer Protection Plan.  The
PROTECNON    Plan reforms the appraisal process to ensure that home buyers
             PLAN   seeking FHA-insured mortgages receive accurate
             and complete appraisals of the homes they seek to
             purchase.  If homebuyers do not receive adequate
             appraisals, they may have to make extensive
             repairs to make their homes habitable.  As a
             result of the additional financial burden, they
             may default on their FHA-insured mortgages.
 
THE NEW HUD  As part of the HomeBuyer Protection Plan, HUD has revised the
VALUATION    Valuation Conditions (VC) Form.  This new form:
CONDITIONS
FORM                         o    Requires submission of valuation
                condition information for all appraisals
 
                 o  Transforms the former VC form into a series of
                "yes-or-no questions" based on readily
                observable physical conditions of the subject
                property
 
               o    Summarizes the information on the physical
                condition of the property for the Homebuyer
 
THE          Another significant change reflected in this
             Handbook is the
PERFORMANCE  introduction of performance measures for
             appraisers.  The
MEASUREMENT  performance measurement framework is designed to
             achieve
FRAMEWORK    improvements in the performance and
             professionalism of appraisers on the FHA
             Register.
 
               HUD will measure appraiser performance in the
             following five performance categories:
 
             o  Appraisal process
             o  Appraisal reporting
             o  Valuation conditions
             o  Maintaining state licensure
             o  Responsiveness to field review
 
                              viii
                                                         4150.2
 
               As part of this new framework, HUD will develop
             statistical indicators to identify poor
             appraisals and appraisers, and will inform
             appraisers of its enforcement efforts.
 
ENFORCEMENT  In addition to providing clear sanctions, HUD has enhanced
             AND SANCTIONS    enforcement efforts by creating an Enforcement
             Center.  The Enforcement Center will provide
             administrative support for the management of the
             sanction process.
 
             RESOURCES   Questions and comments can be sent electronically
             to REAC's Internet website at reacone@hud.gov
 
               The Help Desk will be available be g on May
             5,1999 Monday through Friday from 7:30 a.m. to
             8:00 p.m. EST for questions.  The telephone
             number is (888) 245-4860.
 
                               ix