HUD Cracking Down on Appraisal Reports

We’ve learned that quite a few appraisers are receiving “Notice of Deficiency” letters from HUD/FHA, citing problems with appraisal reports.

Nadlan has seen some of the letters HUD has sent to appraisers: some letters state that a “Notice of Appraisal Deficiencies” will go into appraiser records on file with HUD, along with a warning that “repeated deficiencies may lead to administrative sanctions.”

If there are deficiencies with multiple appraisal reports, appraisers receive letters from HUD requiring them to complete a minimum seven-hour continuing education course to “improve performance in order to remain on the FHA Appraiser Roster.”

Appraisers are required to complete the course within 60 days and provide written evidence of having successfully taken the course. Failure to do so could bring on additional administrative sanctions, according to the HUD letters Nadlan has seen.

We hear that an increasing number of appraisers are getting these letters from HUD, so appraisers need to be on their toes.  Clearly, HUD examiners are going through appraisal reports very carefully and making sure appraisers adhere to regulations to the letter.

What are some of the deficiencies cited by HUD?

• In several instances, appraisers were called out for inconsistencies on the size of a finished basement. For example, in one case HUD noted that the appraiser’s report said the house had a full basement of 962 square feet, while the home’s building sketch said it was nearly twice that. The appraiser was asked to account for the difference in size.

• One appraiser was told that three comparable properties that were used in his report were “not reasonable” because they each had updated kitchens with granite countertops while the subject property was to have a kitchen “updated with IKEA kitchen cabinets.” HUD wanted to know why these were considered to be equal.

• HUD asked an appraiser to more carefully explain the adjustment of the value of comparable properties to justify the estimated worth of the subject property.  “The appraiser must explain the thought process or rationale for the value opinion,” the HUD examiner wrote, noting that using a price range wasn’t precise enough. In one case, the appraiser was told that the range of values used was too wide to justify the value of the subject property.

At Nadlan, appraisal reports undergo our “triple check” process to ensure accuracy. Though it might seem to be a minor annoyance to appraisers to have their reports questioned, we only do so to protect both appraisers and lenders.