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Reverse Mortgage Appraisal Requirements

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Question From Jim on 10/17/2018

When appraising a property for a reverse mortgage, are barns and outbuildings included in valuing the property or just the house itself?

Expert Answer

Hi Jim,

HUD only allows the appraiser to value amenities that are common for the area and for which he/she can justify the value given based on closed sales supporting the appraiser’s estimate of the value.  For example, if the appraiser is going to appraise a home and there are no other properties that sold with barns or outbuildings, HUD will not allow an appraiser to simply say he thinks the value is $10,000 with no supporting sales.

That would require the appraiser to make an unsupported adjustment across the board for all of the sales used of $10,000 and HUD does not allow across the board subjective adjustments (subjective adjustments being one that is subject to the appraisers opinion rather than an objective adjustment such as one that is supported by data).  The appraiser would have to be able to find sales both with and without barns where the sales with barns sold for higher prices than without to support the value conclusion.  Or ideally, all the sales have the similar amenities and no adjustments are required.

We know that it costs money to build barns and other buildings, but the real question is how much is that extra building actually worth to the average buyer in that market?  When you are looking at real estate in some areas, barns and outbuildings are almost necessities such as if you are in an equestrian neighborhood and you plan to bring your horses but what if you have no horses?  Then a barn might not be worth anything to you, no matter what the previous owner paid to have it built. 

HUD insures loans on residential property and not agricultural or commercial so it wants to be certain that if any value is given to an outbuilding, that amenity actually brings value in that market to the average knowledgeable buyer, not just to a special few and the only way to do this is for the appraiser to be able to find ample sales with similar amenities.  If those sales exist, then the value of the amenity is reflected in the selling prices of the homes in the area.  If some sales do have similar amenities and some don’t, the appraiser can then determine by the differences in the selling prices what the buyers are willing to pay for the presence of the outbuildings.  If the other homes do not have the same outbuildings, determining a value is difficult and certainly impossible to substantiate.

Therefore, it would be given the value as shown by the supporting sales in the market with similar amenities but would not be given any value under HUD rules without other sales to support the value.

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Question From S. Bellwood on 10/10/2018

1. Do I have to commit to just one lender before getting the appraisal? Suppose I find a better deal and want to switch lenders before signing, but after the appraisal can I do that?2. Can I use the same appraisal for the new lender, or do I have to pay for a new appraisal, even if the first one is recent? 3. How long is an appraisal valid for?

Expert Answer

Hello-

You do have to commit to a lender to begin the process and for an appraisal to be ordered.  Only one lender at a time can hold your FHA (HUD) Case Number and you need that Case Number to begin the loan and to get the appraisal.

Secondly, you can always change reverse mortgage lenders and the case number, along with the appraisal is assigned to the new lender. You have to start the application process over though so it’s not quite as quick as you might think.

Thirdly, not only CAN you use the same appraisal, but you HAVE to use the same appraisal.  HUD receives and logs the appraisals from all lenders and even decides if they will accept it as is or require a second appraisal and to prevent borrowers from “appraisal shopping” by stopping the process with one lender if they don’t like the value they received.

And finally, the appraisal is good for 120 days.  In some instances where the loan is ready to close the lender can get an extension when needed, but in no case can they cancel the appraisal and order a new one in less than that amount of time in the hope that they may get a different value.  Hope this helps!

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Question From Gloria K. on 10/01/2018

Is the property (ie; land) value included in the amount one would receive

Expert Answer

Hi Gloria,

The land value is considered in the appraisal conducted by the HUD approved appraiser.  Having said that though, HUD does not insure land loans or loans made on properties where the value is overly weighted by the land and not the improvements if that is not common for the area.  Examples of areas where the value is very heavily in the land but the property still only makes sense as a residential property are suburban residential neighborhoods with small lots but the land is still extremely valuable, properties located near beaches and some areas such as the silicon valley in California.

Properties that have very large lots consisting of many, many acres that may be better suited for agriculture or other purposes might not even meet HUD guidelines.  Excess acreage that may not necessarily be suited for agriculture may also be excluded from the value or may even be unacceptable if the property cannot be compared to any similar properties due to it’s uniqueness or size.  However, for all typical residential homes, the land is part of the valued parcel and considered when determining the reverse mortgage benefit.

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Question From Lilia on 9/17/2018

How the reverse mortgage conducting the appraisal, are they looking inside of the house as the same as selling the house? What I mean as beautiful and clean inside as selling the house?

Expert Answer

Hi Lilia,

When doing an appraisal for a reverse mortgage, the appraiser will be giving the home his ratings on the home’s overall condition as part of the value.  The house does not have to be scoured for the appraiser.  When you say “beautiful and clean”, keep in mind that if the items that are not cleaned make the appraiser believe that the home’s overall condition suffers as a result, it could be reflected in the final value he/she assigns to the home if the appraiser feels that it is lowering the amount a buyer will pay for the home.

For example, if there are items left out and the lawn could use mowing, the appraiser would not make any value adjustments for those issues.  If, however, the cabinets in the kitchen were broken, the house needed painting, etc., the appraiser might feel a condition adjustment was warranted from other sales used to determine the value.  It really depends on the sales the appraiser used to compare your home to and whether or not they were in similar condition as your home or whether they were in better overall condition.  So when you say beautiful and clean, a little clutter and dust should not affect anyone’s value but things that require repair, etc. can. 

Also See: https://reverse.mortgage/appraisal-tips-laws-requirements

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Question From Ronald T. on 7/10/2018

Our home is a two family home on an upscale lake, there are no other two family. They have to go 20 miles away to find a comp. Homes start $500,000 on our lake, Scranton is comp city with homes as low as $25,000. What can we do?

Expert Answer

Hi Richard,

I'm going to give you an answer you may not like. HUD requires the appraiser to be able to substantiate the value with similar sales of similar homes. You may have a fantastic home, but if there are no like sales available, it will not meet HUD requirements for a HUD insured loan. The only thing you really can do is allow a lender to order an appraisal from a HUD-approved appraiser to see if he or she can find the required sales.  MOST appraisers and Appraisal Management Companies will notify the lender if they will not be able to successfully complete the assignment but there is no guarantee of anything until they try.

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Question From Brett on 7/05/2018

Are the appraisal requirements different for a reverse mortgage versus a conventional?

Expert Answer

Hello Brett,

For such a short question, this really opens a number of different ways to respond.  In a quick response, you could just say “yes, there are differences in the appraisal requirements” but theoretically, they both have the same function and appraisal is supposed to be a fairly standard process.  Both appraisals are designed to determine a value based on one of three different approaches; the income approach, the replacement value approach and the market data comparison approach.  The income approach is really only valid for income producing properties and so this method is all but ignored on a residential appraisal.  Additionally, the replacement value approach is great to determine how much insurance you might need, but of little value to lenders and most borrowers for anything else.  So appraisers and lenders concentrate almost exclusively on the market data comparison approach which consists of comparing your home to others in your area that have sold, making adjustments for differences and determining a value based on what the known willingness of buyers is to pay for similar homes in that area and then trying to adjust for differences from house to house.

The FHA (reverse mortgage) appraisal and the conventional appraisal both use the same sales and so they are alike in that respect, but then they do differ based on the rules the appraisers have to follow and the method by which the appraisal is delivered.  Appraisers must perform many more inspections for FHA/reverse mortgage appraisals than most appraisers do with a conventional loan.  They must do a head and shoulders inspection of the attic space, they are supposed to check the cabinets to see that they are in working order and turn on and off the water in each location among other things.  FHA appraisers must call out things that HUD requires to be repaired and then reinspect the home to be certain they are completed prior to the loan closing such as chipping and peeling paint, earth to wood contact and health and safety issues that might go unmentioned on a conventional appraisal or merely mentioned as a side-note. 

The FHA reverse mortgage appraisal is also delivered directly to HUD as well through the electronic portal set up by HUD.  Lenders must log the appraisal when it is ordered and the appraiser sends it to HUD through the electronic portal so HUD has the appraisal even before the lender receives it.  Conventional appraisal reports go straight to the lender who ordered the appraisal.  This doesn’t usually create delays of more than 24 hours, but it can.  Ideally both appraisals will take into consideration the same factors and the value should be very similar (keep in mind that an appraisal is an estimate of value on a given day in time so estimates can vary based on appraiser, which sales they considered and the date of the assignment).  Lenders and especially their licensed loan officers can no longer dispute a value or even discuss values with appraisers after appraiser independence rules were adopted by various states, federal laws and HUD, FHLMC and FNMA.  If an appraiser feels that he/she is being pressured in the appraisal process, they have several ways to report the undue influence.  Borrowers can still dispute a value estimate once given by an appraiser, but only by using specific data that they feel the appraiser may have missed or mistakes the appraiser may have made.  But then those borrowers have to provide specific evidence of their assertions (i.e. other houses the appraiser did not use in the report that the borrower feels the appraiser missed that are more similar, are closer and sold more recently than the sales the appraiser used). 

One way in which the two appraisals are similar but can be different in the way they turn out is this comparison and adjustment process.  Both HUD and conventional sources have rules about how much a comparable sale (comps) may be adjusted and still be considered comparable.  But HUD is more strict in that they do not allow what they determine to be “subjective” adjustments.  If the appraiser feels that an adjustment to the value is warranted, he/she must be able to support that adjustment with sales data.  In other words, if the appraiser believes that a house with a 3 car garage is worth $2,000 more than a house with a 2 car garage, HUD expects that appraiser to have at least one comp that sold with a 3 car garage supporting that $2,000 difference.  This is especially true with outbuildings and other differences that are not as easy to quantify as a bathroom or a bedroom might be (but even then, if you have a 2 bedroom home, you cannot use all 3 bedroom comps and try to adjust for the difference because HUD believes there is no way to know the true value or the marketability of the home if there are no other 2 bedroom sales available). 

One last difference to note here is that because of the added level of detail and inspections required, most FHA/reverse mortgage appraisals tend to cost more than conventional appraisals.  Because reverse mortgage appraisals must be performed by an FHA-approved appraiser, in some areas there may be a severely limited number of appraisers eligible to provide the service.  In those instances, the appraisals may take a lot longer, appraisers may have to come from other areas to complete the report and the costs may be higher. 

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Question From Gloria C. on 5/13/2018

Property values here have gone down. Who could do an acceptable appraisal to determine cost of my house to buy it from bank? Assessor’s office value it at 60% of original price.

Expert Answer

Hi Gloria,

I'm sorry, I don't know how to answer this. If it's your property and you have a loan on it, there is no need to buy it from the bank, they don't own it.  You do. 

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Question From Chuck C. on 5/08/2018

When is a second appraisal required, what dollar amount?

Expert Answer

Hi Chuck,

The HUD HECM program has no value at which a second appraisal is required.  Private or proprietary programs may set different guidelines and are subject to change based on program and secondary market requirements. 

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Question From Ruth F. on 5/08/2018

I'm 55 and my husband is 68 can we still get a reverse mortgage on our home now that the value of our home has increased? My name is not on the mortgage. We tried to get a RM over a year ago through 3 different companies, AAG was the last one and we were stilled denied. We were told basically I was to young and our house did not appraise high enough. Our house appraised at the time just over $500k but we only owe $253k we both work, self employed + my husband's SSI . It seems the value of homes has gone up over the last year and our home now seems to fall in the $600k value.

Expert Answer

Hello Ruth,

Values are often one of the areas where borrowers are the most unrealistic in their expectations. HUD has a system set up called Appraiser Independence where the originator doesn't even get to choose the individual appraiser, that is done by a third party Appraisal Management Company and the appraisal is downloaded into the HUD  system before it even goes back to the lender to be certain that the appraiser has no pressure from borrower or lender to come in at any particular value - high or low. 

Now having said that, you can look at the actual recent sales of similar homes in your neighborhood to get an idea if the values are up and what a likely appraised value would be.  You need to be honest with yourself when you look. If your home is 35 years old and has not been remodeled or renovated, is 2300 square feet and has 4 bedrooms and 2 bathrooms, don't compare your home to one that is 2700 square feet, completely remodeled/renovated at a cost if $200,000, 5 bedrooms and 3 bathrooms all new appliances, etc. and try to use this sale to support a higher value for your home.  Borrowers sometimes do this and then are disappointed after paying for an appraisal especially if there are other sales available of similar homes that support lower values that the borrower did not consider..

However, if you see homes that are very similar to your home that are selling for $600,000 now ( and not just listed but are actually selling for that amount) then you also have a good chance of receiving a similar value on your home's appraisal.  Give is a call and let us look at recent sales for you.  We can't promise you a value, only the appraisal can assess the value for the loan but we can certainly let you know if public records show sales of similar homes and what they tend to indicate.  You may now be at a value that supports what you need to complete the loan without having to come in with cash to close the loan.

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Question From Kenneth S. on 10/31/2017

If my reverse mortgage had already gone far enough that an appraisal had been done. A realtor in our area told me he had really low balled my home according to the sales she has been involved in by as much as $45,000. Do I have any recourse.

Expert Answer

Hello Kenneth,

The Realtor may be able to help if she has some comparable sales that are more similar, sold more recently and are better than the ones the appraiser used that indicate a higher value.  You certainly have the right to send in a rebuttal using those sales and request an adjustment to the value based on better information the appraiser did not consider.  However, if the sales the Realtor is considering are not the same age, (your home is older than the higher priced sales) larger or are more renovated and it is her opinion that the appraised value is lower than it should be and the appraiser used current sales of homes that are more like yours, the rebuttal will not be very successful if at all.  

Read more on this here: https://reverse.mortgage/appraisal-process-laws-appeals

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Question From Ronald D. on 10/21/2017

Who pays for the appraisal on a reverse mortgage and what is the fee?

Expert Answer

Hi Ronald,

Unless some arrangement can be made with the lender, the cost is borne by the borrower.  The appraisal is an FHA full appraisal and so the cost typically runs between $500 and $650 depending on the property location.  However, some areas that are particularly remote do not have FHA-approved appraisers available in the immediate area and then appraisers have to travel from other areas to perform the appraisal.  In this case, many times they have to incur additional costs to access data that they do not already receive and they will often charge time and travel premiums for the reports.  The appraisal management company from whom the lender orders the appraisal would be notified of this at the time of the order though and you would have the opportunity to accept or deny the appraiser’s stated charges for your home before you incurred any expenses.

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Question From John N. on 10/02/2017

My home was appraised at x-amount when I applied and received a reverse mortgage three years ago. This amount was based on property tax records. Recently this appraisal was recalculated(?) to be (2X)x-amount. Go figure, but that's not a bad thing other than what I have to pay in taxes.Now, I assume I can renegotiate my reverse mortgage such that I can increase the amount available to borrow. If so, how to I go about doing this?Thanks.

Expert Answer

Hello John,

I'm not sure what you mean by "this amount was based on property tax records".  An FHA appraisal does not even take into consideration the property tax assessment when determining the value for lending purposes.  You should have gotten a copy of the appraisal done at the time and the appraiser would have to include the comparable sales that he/she used to determine the value of your home.  The appraiser does not determine his/her value based on the taxes you pay, but rather by what homes of similar size, condition, age and utility actually sold for in your market area and then adjust for minor differences. 

The reason I say minor differences is because if the differences are too vast, the home is not considered comparable and the appraiser cannot use it under HUD rules to set a value for your home.  You cannot compare a 4 bedroom 3 bathroom 3,000 square foot home to a 2 bedroom 1 bath 1500 square foot house and then just "adjust" to a value.  The houses should have the same bedroom count and as close to the same square footage as possible. 

There is no "renegotiation" available for existing loans however, you may be able to refinance your loan with a new reverse mortgage as long as a new loan would give you ample benefits.  All you would need to do in order to determine if a refinance would work in your circumstances is to contact a lender with your most recent statement and have them run the numbers based on the current HUD program parameters.

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Question From John N. on 10/02/2017

I have a reverse mortgage on my home which sits on three acres of land. Portions of that land is suitable for home building lots. Can I sell these lots and if I can how do I do so?

Expert Answer

Hi John,

If the land is also encumbered by the reverse mortgage (or any loan for that matter), it was considered and used as collateral for that loan.  If you wish to have a portion of the land released from an existing loan, whether it be a reverse mortgage or any loan, it would take a partial reconveyance from the lender to release a specific portion of the lot.  Most lenders would be unwilling to do this unless the portion of the land was such that it was never considered in the first place (as in a very large parcel on which the lender may have only valued a certain number of acres) or a portion of the loan was paid down at the time or the reconveyance.  To determine if this is possible or what you may have to pay down on the existing mortgage you would have to contact your servicer.

As a side note, if you have a parcel with excess land that does not add any value to the homestead on which you are considering obtaining a loan, you may want to think about any lot splits before you place a mortgage encumbering the entire lot.  Especially if the additional land will not get you additional funds in the loan, the split may be easier to complete if it is just you and the city/county before there is a third party like a lender involved.

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Question From Sally on 7/16/2017

Had a fha/hud approved appraisal in May 2017. Able to use it?

Expert Answer

If it was for a reverse mortgage case, then yes it is still valid and the lender could still use that appraisal.  The case number would have to be transferred to the new lender if you were not going through the existing lender but they would still use the same appraisal as well with the transfer.  

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Question From Sandra H. on 7/15/2016

How much does an appraiser cost

Expert Answer

Hi Sandra,

Appraisals vary by location, property characteristics and scope of the project.  Most FHA appraisals for single family properties in areas that are considered urban or suburban are typically between $500 - and $650, depending on where you live.  If the property is located in a rural area and appraisers must travel great distances just to get to the property and the comparable sales, it could be higher and we do not know that amount until the company tells us what the assignment would cost.

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Question From Raymond G. on 2/18/2016

Can the home be appraised before signing a reverse mortgage loan and if yes, do you have a list of approved appraisers for the 22701 area? When I read on-line issues with the reverse home mortgage program, the one that seems to be repeated are those who had signed prior to the appraisal and found it much lower than anticipated and felt trapped.

Expert Answer

Hi Raymond,

HUD does not allow any services to be performed in conjunction with a reverse mortgage until after a borrower has been counseled, an application has been taken by a lender and a Case Number has been assigned by HUD.  Any appraisal that you had completed would not be valid for the purpose of the reverse mortgage.  And since market data changes and the appraised value is an opinion of value based on the current sales data, a new appraiser could uncover more recent sales that indicated a higher or lower value that would render a previous opinion of value worthless anyway.  An appraisal is a snapshot in time and paying for a second appraisal is not the best way to go since it does not insure anything.

However, no one should ever feel "trapped" after the appraisal phase of the loan.  There is no cancellation fee for a reverse mortgage and if you are planning on paying for an appraisal anyway, why pay for two?  You can always cancel the transaction with no charge to you other than the appraisal and any counseling costs you paid (usually $125 or less but I've never seen it higher than $150 for counseling).  If your plan was to pay for an appraisal that you can't use anyway and then a second appraisal with the loan, it is much more cost effective to begin the loan and cancel the transaction if you do not wish to proceed.

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Question From Rhys on 7/23/2012

I am thinking of adding on to my home prior to obtaining a reverse mortgage. This would hopefully substantially increase the appraisal value. Other sites indicate this is not allowed by reverse mortgage lenders. Is this true?

Expert Answer

I don't know what they would be referring to as "not allowed".  It would all depend on the type of improvements you intended to make, whether or not they were done with permits and what that did to the property.  A good example would be a 1200 square foot home in a neighborhood of 2500 square foot homes.  You could add a permitted addition of 1300 square feet that added functional space and upgraded the home so that it was very similar to the other properties selling in the area.  This is absolutely allowed and would not be an issue provided the work was complete and the certificate of occupancy had been issued by the city/county where the property is located. 

However, if the work is not done is a quality manner, does not conform to the neighborhood or there are no sales to support the new improvements, that could actually hurt the owner's chances of obtaining a reverse mortgage.  Another example of this would be a borrower who added a second unit without permits to a property that was zoned for only one unit and therefore the new improvements did not conform to the local zoning laws. 

Even having made this distinction, remember that improvements rarely bring a dollar for dollar value to a home.  The best way to get an idea of what your planned improvements might actually bring you in an appraisal is to find houses in your immediate area that have sold in the past 3 - 4 months that are similar to what your house would be with the planned improvements.  These are the sale comparables that an appraiser would have to consider when appraising your home.  If houses with the improvements you are contemplating bring $40,000 more on the market but your cost would be $60,000, you would not realize the full value of the cost of the improvements.  The times when this does not seem to be the case is like in the first example above, when the improvements put the home into a whole new category of property that commands a much higher price.  But keep in mind that there is such a thing as an over-improvement for the neighborhood and you need to make sure that your improvements are common with the properties in your immediate area and sales with similar amenities are available or once again, you would not realize the cost of the improvements in an appraisal.

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