Valuation Analysis for Home Mortgage Insurance

Directive Number: 4150.1

[CHAPTER 1. GENERAL INFORMATION 18](#chapter-1.-general-information)

[1-1. PURPOSE OF THE APPRAISAL 18](#__RefHeading___Toc169057464)

[1-2. VALUATION PERSONNEL 19](#__RefHeading___Toc169057465)

[CHAPTER 2. PRINCIPLES OF DWELLING VALUATION
21](#chapter-2.-principles-of-dwelling-valuation)

[SECTION 1. CHARACTER OF VALUE 21](#section-1.-character-of-value)

[2-1. DEFINITION OF MARKET VALUE 21](#__RefHeading___Toc169057468)

[2-2. SOURCE OF VALUE 21](#__RefHeading___Toc169057469)

[2-3. DEFINITION OF TERMS 21](#__RefHeading___Toc169057470)

[2-4. MARKET VALUE AND MARKET PRICE 22](#__RefHeading___Toc169057471)

[2-5. DISTINCTION BETWEEN COST AND MARKET VALUE
23](#__RefHeading___Toc169057472)

[2-6. DEPRECIATION 23](#__RefHeading___Toc169057473)

[2-7. OBSOLESCENCE 23](#__RefHeading___Toc169057474)

[2-8. DETERIORATION 24](#__RefHeading___Toc169057475)

[SECTION 2 - BASIC PRINCIPLES OF VALUATION
24](#section-2---basic-principles-of-valuation)

[2-9. VALUATION PRINCIPLES 24](#__RefHeading___Toc169057477)

[2-10. BASIC VALUATION PROCESS 25](#__RefHeading___Toc169057478)

[2-11. DETERMINATION OF RIGHTS INCLUDED IN PROPERTY
26](#__RefHeading___Toc169057479)

[2-12. ESTIMATION OF RETURNS FROM PROPERTY
27](#__RefHeading___Toc169057480)

[2-13. OVERIMPROVEMENT AND UNDERIMPROVEMENT
28](#__RefHeading___Toc169057481)

[2-14. DWELLINGS ON HIGHER-USE SITES 28](#__RefHeading___Toc169057482)

[2-15. MECHANICAL EQUIPMENT AND ACCESSORIES
28](#__RefHeading___Toc169057483)

[SECTION 3 - ACCURACY IN VALUATION
29](#section-3---accuracy-in-valuation)

[2-16. ACCURACY IN VALUATION 29](#__RefHeading___Toc169057485)

[2-17. PLAUSIBILITY 29](#__RefHeading___Toc169057486)

[2-18. BRACKETING 29](#__RefHeading___Toc169057487)

[2-19. FINAL CONCLUSION 30](#__RefHeading___Toc169057488)

[CHAPTER 3. DATA 30](#chapter-3.-data)

[3-1. GENERAL 31](#__RefHeading___Toc169057490)

[3-2. COST DATA 31](#__RefHeading___Toc169057491)

[3-3. MARKET DATA 31](#__RefHeading___Toc169057492)

[3-4. MARKETING EXPENSE 31](#__RefHeading___Toc169057493)

[3-5. MAPS 31](#__RefHeading___Toc169057494)

[3-6. POPULATION AND HOUSING STATISTICS
32](#__RefHeading___Toc169057495)

[3-7. DATA REQUIREMENTS AS RELATED TO THE MODIFIED COST APPROACH
33](#__RefHeading___Toc169057496)

[3-8. HUD HOUSING MARKET REPORTS 34](#__RefHeading___Toc169057497)

[3-9. LAND USE REGULATIONS 34](#__RefHeading___Toc169057498)

[3-10. SPECIAL CONDITIONS AFFECTING APPRAISAL ASSIGNMENT AREAS
35](#__RefHeading___Toc169057499)

[3-11. SUBDIVISIONS 35](#__RefHeading___Toc169057500)

[3-12. CLOSING COST DATA 36](#__RefHeading___Toc169057501)

[3-13. TAXES AND SPECIAL ASSESSMENTS 37](#__RefHeading___Toc169057502)

[3-14. NON-PREPAYABLE SPECIAL ASSESSMENTS
37](#__RefHeading___Toc169057503)

[3-15. PREPAYABLE SPECIAL ASSESSMENTS 37](#__RefHeading___Toc169057504)

[3-16. EQUIPMENT IN VALUE ITEMS 38](#__RefHeading___Toc169057505)

[3-17. MISCELLANEOUS VALUATION DATA 38](#__RefHeading___Toc169057506)

[CHAPTER 4. LOCATION ANALYSIS 38](#chapter-4.-location-analysis)

[SECTION 1 - NEIGHBORHOOD CHARACTERISTICS
38](#section-1---neighborhood-characteristics)

[4-1. PURPOSE OF LOCATION ANALYSIS 38](#__RefHeading___Toc169057509)

[4-2. GENERAL 38](#__RefHeading___Toc169057510)

[4-3. COMPETITIVE LOCATIONS 39](#__RefHeading___Toc169057511)

[4-4. THE METHOD OF ANALYSIS 39](#__RefHeading___Toc169057512)

[4-5. CONSIDERATION IN THE ANALYSIS OF LOCATION
39](#__RefHeading___Toc169057513)

[4-6. ECONOMIC TRENDS 39](#__RefHeading___Toc169057514)

[4-7. LAND USES 40](#__RefHeading___Toc169057515)

[4-8. COMMUNITY SERVICES 41](#__RefHeading___Toc169057516)

[4-9. TRANSPORTATION 41](#__RefHeading___Toc169057517)

[4-10. UTILITIES AND SERVICES 41](#__RefHeading___Toc169057518)

[4-11. SINGLE INDUSTRY COMMUNITIES 42](#__RefHeading___Toc169057519)

[4-12. STUDY OF FUTURE UTILITY OF PROPERTY
42](#__RefHeading___Toc169057520)

[4-13. NEIGHBORHOOD CHANGE 43](#__RefHeading___Toc169057521)

[4-14. MARKETABILITY 43](#__RefHeading___Toc169057522)

[4-15. SMALL COMMUNITIES 44](#__RefHeading___Toc169057523)

[4-16. OUTLYING LOCATIONS AND ISOLATED SITES
45](#__RefHeading___Toc169057524)

[4-17. ACCEPTABLE LOCATIONS PURSUANT TO SECTION 223(e)
45](#__RefHeading___Toc169057525)

[4-18. CONSIDERATION OF GENERAL TAXES AND SPECIAL ASSESSMENTS
46](#__RefHeading___Toc169057526)

[4-19. LEVEL OF TAXES AND ASSESSMENTS 46](#__RefHeading___Toc169057527)

[SECTION 2 - SPECIAL NEIGHBORHOOD HAZARDS AND NUISANCES
49](#section-2---special-neighborhood-hazards-and-nuisances)

[4-20. UNACCEPTABLE LOCATIONS 49](#__RefHeading___Toc169057529)

[4-21. PHYSICAL ATTRACTIVENESS 49](#__RefHeading___Toc169057530)

[4-22. OPERATING AND ABANDONED OIL OR GAS WELLS
50](#__RefHeading___Toc169057531)

[4-23. FLOOD HAZARD AREAS 51](#__RefHeading___Toc169057532)

[4-24. OVERHEAD HIGH VOLTAGE TRANSMISSION LINES
53](#__RefHeading___Toc169057533)

[4-25. HEAVY TRAFFIC 54](#__RefHeading___Toc169057534)

[4-26. AIRPORT NOISE & HAZARDS 54](#__RefHeading___Toc169057535)

[4-27. FIRE AND EXPLOSION 57](#__RefHeading___Toc169057536)

[4-28. SMOKE, FUMES, OFFENSIVE NOISE AND ODORS, AND FAILING SEWAGE
SYSTEMS 58](#__RefHeading___Toc169057537)

[4-29. TERMITES 58](#__RefHeading___Toc169057538)

[CHAPTER 5. PROPERTY ANALYSIS. 60](#chapter-5.-property-analysis.)

[5-1. ANALYSIS OF PHYSICAL IMPROVEMENTS
60](#__RefHeading___Toc169057540)

[5-2. ANALYSIS OF SITE 60](#__RefHeading___Toc169057541)

[5-3. HIGHEST AND BEST USE OF SITE 60](#__RefHeading___Toc169057542)

[5-4. EXCESS LAND 60](#__RefHeading___Toc169057543)

[5-5. TOPOGRAPHY 61](#__RefHeading___Toc169057544)

[5-6. SUITABILITY OF SOIL 61](#__RefHeading___Toc169057545)

[5-7. OFF-SITE IMPROVEMENTS 61](#__RefHeading___Toc169057546)

[5-8. EASEMENTS, RESTRICTIONS, OR ENCROACHMENTS
62](#__RefHeading___Toc169057547)

[5-9. PROPOSED CONSTRUCTION 62](#__RefHeading___Toc169057548)

[5-10. EXISTING DWELLINGS AND DWELLINGS COMPLETED LESS THAN ONE YEAR
PRIOR TO THE APPRAISAL WITHOUT HUD OR VA APPROVAL AND INSPECTIONS
62](#__RefHeading___Toc169057549)

[5-11. NONCOMPLIANCE WITH THE GENERAL ACCEPTABILITY CRITERIA
63](#__RefHeading___Toc169057550)

[5-12. CONDITIONS REQUIRING REPAIR 63](#__RefHeading___Toc169057551)

[5-13. CONDITIONS NOT REQUIRING REPAIRS
64](#__RefHeading___Toc169057552)

[5-14. LEAD BASED PAINT 64](#__RefHeading___Toc169057553)

[5-15. ADEQUACY OF FUNCTIONAL COMPONENTS
65](#__RefHeading___Toc169057554)

[5-16. STANDARDIZED PRE-PRINTED SPECIAL CONDITION (v.c) SHEET
65](#__RefHeading___Toc169057555)

[5-17. REPAIR INSPECTIONS AND HOME INSPECTIONS
66](#__RefHeading___Toc169057556)

[5-18. CODE ENFORCEMENT FOR EXISTING PROPERTIES
66](#__RefHeading___Toc169057557)

[5-19. CERTIFICATION OF MECHANICAL EQUIPMENT
67](#__RefHeading___Toc169057558)

[5-20. DESIGN 67](#__RefHeading___Toc169057559)

[5-21. CONFORMITY OF PROPERTY TO NEIGHBORHOOD
68](#__RefHeading___Toc169057560)

[5-22. ANALYSIS OF THE ELEMENTS OF CONFORMITY
68](#__RefHeading___Toc169057561)

[5-23. REMAINING ECONOMIC LIFE OF BUILDING IMPROVEMENTS
70](#__RefHeading___Toc169057562)

[CHAPTER 6. APPROACHES TO VALUE 72](#chapter-6.-approaches-to-value)

[6-1. GENERAL 72](#__RefHeading___Toc169057564)

[SECTION 1. MARKET APPROACH 73](#section-1.-market-approach)

[6-2. USE OF MARKET PRICE IN VALUATION 73](#__RefHeading___Toc169057566)

[6-3. EXCLUSION OF NON-REALTY ITEMS 74](#__RefHeading___Toc169057567)

[6-4. USE OF MARKET DATA CONCERNING BUYDOWNS AND INCENTIVES TO BUY
74](#__RefHeading___Toc169057568)

[6-5. MARKET COMPARISONS 75](#__RefHeading___Toc169057569)

[6-6. SELECTION OF COMPARABLE PROPERTIES (Bracketing)
75](#__RefHeading___Toc169057570)

[6-7. USE OF CONVENTIONAL SALES DATA 76](#__RefHeading___Toc169057571)

[6-8. EVALUATION AND USE OF MARKET DATA
76](#__RefHeading___Toc169057572)

[6-9. QUANTITY OF DATA 77](#__RefHeading___Toc169057573)

[6-10. MARKET PRICE COMPARISONS 77](#__RefHeading___Toc169057574)

[6-11. ADJUSTMENTS 78](#__RefHeading___Toc169057575)

[6-12. RELIABILITY OF SALES DATA 78](#__RefHeading___Toc169057576)

[SECTION 2. REPLACEMENT COST 79](#section-2.-replacement-cost)

[6-13. USE OF REPLACEMENT COST OF PROPERTY IN VALUATION
79](#__RefHeading___Toc169057578)

[6-14. CONDITIONS UNDER WHICH VALUE EQUALS REPLACEMENT COST
79](#__RefHeading___Toc169057579)

[6-15. PRINCIPLE OF SUBSTITUTION 80](#__RefHeading___Toc169057580)

[6-16. REPLACEMENT COST OF ON-SITE IMPROVEMENTS
80](#__RefHeading___Toc169057581)

[6-17. ESTIMATED MARKET VALUE OF AN EQUIVALENT SITE
81](#__RefHeading___Toc169057582)

[6-18. SITES SOLD BY A PUBLIC BODY 84](#__RefHeading___Toc169057583)

[SECTION 3. CAPITALIZATION OF INCOME
84](#section-3.-capitalization-of-income)

[6-19. GENERAL 84](#__RefHeading___Toc169057585)

[6-20. VALUE OF RENTAL INCOME PROPERTIES
85](#__RefHeading___Toc169057586)

[6-21. DETERMINATION OF RENTAL VALUE 85](#__RefHeading___Toc169057587)

[6-22. BASIS OF THE ESTIMATE 85](#__RefHeading___Toc169057588)

[6-23. SEASONAL RENTAL 85](#__RefHeading___Toc169057589)

[6-24. GROSS RENTAL ESTIMATE 85](#__RefHeading___Toc169057590)

[6-25. BASIS OF COMPARISON 86](#__RefHeading___Toc169057591)

[6-26. RENT MULTIPLIERS 86](#__RefHeading___Toc169057592)

[6-27. VARIABLES IN RENT MULTIPLIERS 86](#__RefHeading___Toc169057593)

[6-28. ACCURACY OF ESTIMATES 87](#__RefHeading___Toc169057594)

[SECTION 4. MODIFIED COST 87](#section-4.-modified-cost)

[6-29. SPECULATIVE SALES AND MODIFIED COST APPROACH
87](#__RefHeading___Toc169057596)

[SECTION 5. LEASEHOLDS 94](#section-5.-leaseholds)

[6-30. DEFINITIONS 94](#__RefHeading___Toc169057598)

[6-31. TENANT-OCCUPIED PROPERTY: (LAND AND IMPROVEMENT)
94](#__RefHeading___Toc169057599)

[6-32. ELIGIBILITY OF LEASEHOLD ESTATES (GROUND LEASES)
95](#__RefHeading___Toc169057600)

[6-33. APPROACH TO VALUE OF THE LEASEHOLD ESTATE
98](#__RefHeading___Toc169057601)

[CHAPTER 8. UNIFORM RESIDENTIAL APPRAISAL REPORT
110](#chapter-8.-uniform-residential-appraisal-report)

[8-1. GENERAL 110](#__RefHeading___Toc169057603)

[8-2. INSPECTION OF PROPERTY 111](#__RefHeading___Toc169057604)

[8-3. INSTRUCTIONS FOR COMPLETING THE UNIFORM RESIDENTIAL APPRAISAL
REPORT (URAR) 113](#__RefHeading___Toc169057605)

[8-4. RECONSIDERATION OF APPRAISED VALUE
128](#__RefHeading___Toc169057606)

[CHAPTER 9. REVIEWS OF APPRAISAL REPORTS
129](#chapter-9.-reviews-of-appraisal-reports)

[SECTION 1. THE DESK REVIEW 129](#section-1.-the-desk-review)

[9-1. PURPOSE 129](#__RefHeading___Toc169057609)

[9-2 Review of the Appraisal Report 131](#__RefHeading___Toc169057610)

[SECTION 2. THE FIELD REVIEW 133](#section-2.-the-field-review)

[9-3. GENERAL 133](#__RefHeading___Toc169057612)

[9-4. TIME FRAME AND DOCUMENTS REQUIRED FOR FIELD REVIEWS
134](#__RefHeading___Toc169057613)

[9-5. SELECTING CASES FOR FIELD REVIEWS
134](#__RefHeading___Toc169057614)

[9-6. FIELD REVIEW OF MORTGAGOR COMPLAINTS
135](#__RefHeading___Toc169057615)

[9-7. COMPLETION OF THE FIELD REVIEW FORM 1038v (See exhibits 1-5 at end
of chapter) 135](#__RefHeading___Toc169057616)

[9-8. MONITORING OF FIELD REVIEWERS 137](#__RefHeading___Toc169057617)

[CHAPTER 10. MANUFACTURED (MOBILE) HOMES
139](#chapter-10.-manufactured-mobile-homes)

[SECTION I - TITLE I MORTGAGE INSURANCE
139](#section-i---title-i-mortgage-insurance)

[10-1. GENERAL 139](#__RefHeading___Toc169057620)

[10-2. MANUFACTURED HOME LOT APPRAISALS
139](#__RefHeading___Toc169057621)

[10-3. MANUFACTURED HOME LOTS 140](#__RefHeading___Toc169057622)

[10-4. INDIVIDUAL LOT ACCEPTABILITY 140](#__RefHeading___Toc169057623)

[10-5. PROCESSING INDIVIDUAL LOT APPLICATIONS
141](#__RefHeading___Toc169057624)

[10-6. UNDEVELOPED LOT 142](#__RefHeading___Toc169057625)

[10-7. PROPOSED MANUFACTURED HOME SUBDIVISION CRITERIA
142](#__RefHeading___Toc169057626)

[10-8. PROCESSING THE SUBDIVISION APPLICATION
142](#__RefHeading___Toc169057627)

[10-9. PROCESSING FORECLOSED MANUFACTURED HOME SITES
143](#__RefHeading___Toc169057628)

[10-10. MANUFACTURED HOME LOT APPRAISAL REPORT
143](#__RefHeading___Toc169057629)

[SECTION 2. TITLE II MORTGAGE INSURANCE
143](#section-2.-title-ii-mortgage-insurance)

[10-11. ELIGIBILITY: PROPOSED CONSTRUCTION
143](#__RefHeading___Toc169057631)

[CHAPTER 11. CONDOMINIUMS AND PLANNED UNIT DEVELOPMENTS
145](#chapter-11.-condominiums-and-planned-unit-developments)

[SECTION 1. CONDOMINIUMS 145](#section-1.-condominiums)

[11-1. GENERAL 145](#__RefHeading___Toc169057634)

[11-2. DEFINITIONS 145](#__RefHeading___Toc169057635)

[11-3. GENERAL REQUIREMENTS FOR APPROVAL
146](#__RefHeading___Toc169057636)

[11-4. APPROVAL AND PROCESSING INSTRUCTIONS
148](#__RefHeading___Toc169057637)

[11-5. PROPOSED CONSTRUCTION 149](#__RefHeading___Toc169057638)

[11-6. DEVELOPMENTS WITH BUILDINGS UNDER CONSTRUCTION OR EXISTING LESS
THAN ONE YEAR 152](#__RefHeading___Toc169057639)

[11-7. EXISTING CONSTRUCTION (NON-OPERATING CONDOMINIUM ASSOCIATION)
154](#__RefHeading___Toc169057640)

[11-8. EXISTING CONSTRUCTION (OPERATING CONDOMINIUM ASSOCIATION)
155](#__RefHeading___Toc169057641)

[11-9 PROJECTS CONVERTED FROM RENTAL HOUSING
156](#__RefHeading___Toc169057642)

[11-10. APPROVALS BY THE DEPARTMENT OF VETERANS AFFAIRS
158](#__RefHeading___Toc169057643)

[11-11. Approvals by Federal National Mortgage Association (FNMA)
160](#__RefHeading___Toc169057644)

[SECTION 2. - PLANNED UNIT DEVELOPMENTS
166](#__RefHeading___Toc169057645)

[11-12. PLANNED UNIT DEVELOPMENT 167](#__RefHeading___Toc169057646)

[11-13. LEGAL DOCUMENTS 171](#__RefHeading___Toc169057647)

[11-14. VA-CRV CONVERSIONS 171](#__RefHeading___Toc169057648)

[SECTION 3. SINGLE FAMILY COOPERATIVE PROGRAM - SECTION 203(n)
173](#section-3.-single-family-cooperative-program---section-203n)

[11-15. SECTION 203(n) 173](#__RefHeading___Toc169057650)

[CHAPTER 12. MISCELLANEOUS 173](#chapter-12.-miscellaneous)

[12-1. VALUATION INSTRUCTIONS FOR SPECIAL PROBLEMS AND PROCEDURES
173](#__RefHeading___Toc169057652)

[12-2. APPRAISAL OF ACQUIRED PROPERTIES
175](#__RefHeading___Toc169057653)

[12-3. CLAIMS WITHOUT CONVEYANCE OF TITLE (CWCOT)
177](#__RefHeading___Toc169057654)

[12-4. PROPERTIES ENCUMBERED BY EASEMENTS, RESTRICTIONS AND RESERVATIONS
179](#__RefHeading___Toc169057655)

[12-5. MORTGAGE CREDIT REQUESTS FOR APPRAISAL
182](#__RefHeading___Toc169057656)

[12-6. EXISTING HOUSES BEING MOVED TO NEW FOUNDATIONS
182](#__RefHeading___Toc169057657)

[12-7. HUD ACCEPTANCE OF VA CERTIFICATE OF REASONABLE VALUE (CRV)
185](#__RefHeading___Toc169057658)

[12-8. APPLICATION FOR OPERATIVE-BUILDER COMMITMENTS
187](#__RefHeading___Toc169057659)

[12-9. FINISHED FLOORING IN PROPOSED CONSTRUCTION CASES
187](#__RefHeading___Toc169057660)

[12-10. CARPETING IN EXISTING HOUSES 188](#__RefHeading___Toc169057661)

[12-11. SOIL TREATMENT WITH INDIVIDUAL WATER SYSTEMS
188](#__RefHeading___Toc169057662)

[12-12. ESTIMATE OF VALUE OF FRAGMENTAL PROPERTIES
188](#__RefHeading___Toc169057663)

[12-13. CONSIDERATION IN AREAS AFFECTED BY MILITARY INSTALLATIONS
188](#__RefHeading___Toc169057664)

[12-14. SOLAR ENERGY 191](#__RefHeading___Toc169057665)

[12-15. WEATHERIZATION PROGRAM 202](#__RefHeading___Toc169057666)

[12-16. WATER AND SEWAGE SYSTEMS 207](#__RefHeading___Toc169057667)

[12-17. SHARED WELLS 210](#__RefHeading___Toc169057668)

[12-18. EARTH SHELTERED HOUSING 214](#__RefHeading___Toc169057669)

[12-19. DOME HOMES 215](#__RefHeading___Toc169057670)

[12-20. UREA FORMALDEHYDE FOAM INSULATION
215](#__RefHeading___Toc169057671)

[12-21. ASBESTOS 215](#__RefHeading___Toc169057672)

U.S. Department of Housing and Urban Development

H O U S I N G

Special Attention of: Transmittal Handbook No.:4150.1 REV-1

Directors of Housing Issued: March 15, 1990

Directors, Housing Development

Division

Field Office Managers

Field Office Chiefs

Direct Endorsement Underwriters

1\. This Transmits:

Handbook 4150.1 REV.1, Valuation Analysis for Home Mortgage

Insurance, dated February 1990.

2\. Explanation of Changes:

This handbook has been completely revised to include changes

that have occurred since April 1973. It contains memoranda

and directives and modifies HUD Field Office functions to fit

current staffing patterns.

3\. Cancellations:

4150.1 - Valuation Analysis for Home Mortgage Insurance dated

April 1973.

4\. Filing Instructions:

Remove Insert

Handbook 4150.1 Handbook 4150.1 REV-1

dated April 1973 dated February 1990

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Assistant Secretary for

Housing-Federal Housing Commissioner

HUD-23 (9-81)

Program Participants

and Departmental

Staff

February 1990 Valuation Analysis

for Home Mortgage

Insurance

**FOREWORD**

The Valuation Section is responsible for the appraisal review

analysis of the property, and the quality control systems which

monitor that function to minimize the risk the property plays in a

mortgage transaction.

This Handbook outlines the procedures which have been established

by the Assistant Secretary for Housing- Federal Housing

Commissioner for use in implementing the valuation function.

The Handbook is divided into 12 Chapters. It describes the

techniques used to implement the various processes. Chapter 11

contains the processing procedures and policy guidance for

condominium projects. Chapter 12 outlines miscellaneous, valuation

problems and contains information relating to HUD policy

concerning these subjects. Chapter seven has been reserved.

References:

\(1\) 4000.2 - Mortgagees\' Handbook

\(2\) 4000.4 Rev.1 - Single Family Direct Endorsement Program

\(3\) 4010.1 - Definitions, Policy Statements and General

Rulings

\(4\) 4020.1 Rev. 1 - Underwriting Analysis

\(5\) 4110.1 - Fiscal and ADP Handbook

\(6\) 4115.1 - Administrative Instructions and Procedures

\(7\) 4115.3 - Master Conditional Commitment Procedure

\(8\) 4125.1 Rev. - Underwriting - Technical Direction for

Home Mortgage Insurance

\(9\) 4135.1 Rev.2 - Procedures for Approval of Single Family

Proposed Construction in New Subdivisions

\(10\) 4140.1 - Land Planning Principles for Home Mortgage

Insurance

\(11\) 4140.2 - Land Planning Procedures and Data for Home

Mortgage Insurance

\(12\) 4145.1 Rev.2 - Architectural Processing and Inspections

for Home Mortgage Insurance

\(13\) 4155.1 Rev.3 - Mortgage Credit Analysis for Mortgage

Insurance on One to Four-Family

Properties

\(14\) 4160.1 - Reconsideration Before Endorsement for Home

Mortgage Insurance

\(15\) 4170.1 - Reconsideration After Endorsement for Home

Mortgage Insurance

\(16\) 4190.1 - Single Family Underwriting Reports and Forms

Catalog

\(17\) 4240.4 - Rehabilitation Home Mortgage Insurance, Section

203(k)

\(18\) 4260.1 - Section 223 (a) (e) and (d) Miscellaneous Type

Mortgage Insurance

\(19\) 4265.1 - Home Mortgage Insurance - Condominium Units,

Section 234(c)

\(20\) 4580.1 - Mortgage Insurance For Condominium Housing

Insured Under Section 234(d) of The National

Housing Act

\(21\) 4905.1 - Requirements For Existing Housing - One To Four

Family Units

#  CHAPTER 1. GENERAL INFORMATION

[]{#__RefHeading___Toc169057464 .anchor}**1-1. PURPOSE OF THE
APPRAISAL**. \<[Top](#_top)\> The appraisal is used to determine the

value of the property for mortgage insurance purposes. The value

serves as the basis for determining the maximum insurable mortgage

loan. The appraisal is performed for the benefit of the Department

of Housing and Urban Development (HUD), not for the public. In

addition to providing an estimate of value, the appraiser inspects

the property for any visible deficiencies which may affect the health

or safety of the occupants or the continued marketability of the

property. HUD makes no warranties as to the value or condition of

the house. Therefore, the borrower must determine that the price of

the property is reasonable and that its condition is acceptable.

The completed appraisal must be reviewed by either a HUD staff review

appraiser in the local HUD Field Office or a Direct Endorsement

Underwriter. The Conditional Commitment/Statement of Appraised

Value, form HUD-92800.5B, which is then issued, represents HUD\'s

estimate of value for mortgage insurance purposes. The estimate of

value arrived at by the reviewer, plus closing costs, is the value on

which the maximum insurable mortgage loan is determined. The

reviewer may amend the appraiser\'s estimate of value if there is

sufficient evidence to support a higher or lower value. The

appraisal must provide the reviewer with all the facts about the

property so that a logical conclusion can be reached as to the

estimate of value.

[]{#__RefHeading___Toc169057465 .anchor}**1-2. VALUATION PERSONNEL**
\<[Top](#_top)\>

A. HUD Staff Appraisers.

1\) Chief Appraiser. The Chief Appraiser reports to the

Director of Housing/Housing Development or Office Manager

and works independently within established HUD procedures.

The Chief Appraiser supervises the Valuation Branch and is

responsible for insuring valuation decisions that are

consistent, sound and in compliance with outstanding

instructions and prescribed procedures for Single Family

Valuation.

The Chief Appraiser shall have training and experience in

appraising residential structures, determining the value of

specific property rights such as easements, and water and

mineral rights. The Chief Appraiser must direct and

instruct less experienced appraisers in the appropriate

techniques of performing different types of appraisals and

reviews.

(1-2) 2) Single Family Valuation duties of the Chief Appraiser. The

duties of the Chief Appraiser include but are not limited

to:

a\. Directing the performance of desk reviews of appraisal

reports.

b\. Recruiting appraisers for the Single Family Fee

Appraiser Panel, and Fee Field Review Appraiser Panel;

reviewing their applications and demonstration

appraisals and making recommendations to management.

c\. Training HUD Review Appraisers, Fee Appraisers and Fee

Field Review Appraisers in HUD procedures, programs and

processing changes.

d\. Monitoring the performance of Fee Appraisers, Direct

Endorsement Mortgagee Staff Appraisers and Fee Field

Review Appraisers for technical competence,

cooperation, timeliness of work, and professionalism in

dealing with the public.

e\. Responding to inquiries from mortgagees, builders, real

estate brokers, sellers and buyers, and the general

public concerning HUD valuation policy and regulations.

f\. Preparing a schedule of closing costs for each housing

market area or location therein if there is significant

variation in the amount of closing costs typically

being paid in connection with the purchase, financing

and transfer of title. The typical cost for each item

will be the basis for the estimate. The schedule will

be revised annually, or more frequently if warranted.

g\. Deciding on applications to insure mortgages for homes

in problem areas, such as those subject to possible

flood conditions, advanced neighborhood obsolescence

and deterioration or other hazards.

h\. Directing the review of and making determinations

concerning the capacity and adequacy of such items as

individual water and sewage disposal systems, community

water supply systems and acreage tracts in rural and

outlying areas.

(1-2) i. Using the Office Manager/Housing Development Director\'s

authority (previously known as the Chief Underwriter\'s

prerogative) as appropriate when delegated by the

Director of Housing Development. This authority allows

the Director of Housing Development to intervene in

cases whereby a buyer and seller have agreed upon a

sales price which is in conflict with HUD\'s estimate of

value. It allows the Director of Housing Development

or designee to raise HUD\'s estimate of value in

situations which he/she believes are reasonable and

proper. However, the amount of increase should not be

predicated on a percentage, but rather an amount

reasonably within the range of neighborhood values.

Note: DE Underwriters do not have this authority.

j\. Preparing memorandums as necessary but at least

quarterly for the Director of Housing Development or

Office Manager, describing any soft market conditions

in the Field Office jurisdiction. Upon receipt of such

memoranda from the Chief Appraiser, the Director will

review the facts and make any additional investigation

deemed necessary.

B. HUD Staff Review Appraisers. The duties and responsibilities of

HUD Staff Review Appraisers include, but are not limited to:

1\) Performing desk reviews of appraisal reports and requests

for value increases.

2\) Performing desk reviews of inspections performed by fee

appraisers and DE mortgagee staff appraisers.

3\) Performing field reviews of the required number of

appraisals and inspections performed by fee and DE mortgagee

staff appraisers. The purpose of the field review is not

only to monitor appraiser performance, but also to keep

abreast of market conditions.

4\) Performing field reviews in response to complaints from

homeowners concerning defects in their home.

5\) Assisting in the training of fee and DE mortgagee staff

appraisers.

6\) Performing appraisals requested by the other components of

HUD.

7\) Processing change orders in construction cases in which no

visit to the field is required.

(1-2) 8) Organizing, reviewing and preparing appropriate comments on

reports of an oversupply of housing received from fee panel

appraisers or staff, for the Chief Appraiser. The Chief

Appraiser will relay to the Director of EMAD or the insuring

office Market Analyst (if any) copies of any material of

significance to them.

# CHAPTER 2. PRINCIPLES OF DWELLING VALUATION

#  SECTION 1. CHARACTER OF VALUE

[]{#__RefHeading___Toc169057468 .anchor}**2-1. DEFINITION OF MARKET
VALUE**. \<[Top](#_top)\> Market value is the most probable price

which a property should bring in a competitive and open market under

all conditions requisite to a fair sale, the buyer and seller, each

acting prudently, knowledgeably and assuming the price is not

affected by undue stimulus.

[]{#__RefHeading___Toc169057469 .anchor}**2-2. SOURCE OF VALUE.**
\<[Top](#_top)\> The future usefulness of a property is the source

of any value it may have. The obvious fact that residential real

estate is useful because it provides shelter is significant only when

the motives of prospective owners are used as the basis for further

examination of the character of the usefulness.

Knowledgeable buyers and sellers in the market examine and view

available properties in terms of the probable future benefits to be

derived from ownership. Their expectations or their forecasts with

respect to the extent, quality and duration of the future benefits

are translated into present prices. Buying and selling with these

considerations in mind create real estate price levels.

[]{#__RefHeading___Toc169057470 .anchor}**2-3. DEFINITION OF TERMS**.
\<[Top](#_top)\> The terms used in this section are:

A. Price refers to the total price paid for a property, exclusive of

closing costs.

B. Typical buyers refers to buyers who have the needs, and desires

and financial capacity most characteristic of the persons who

will purchase properties similar to the one under consideration.

C. Appraisal: The act or process of estimating value. In the

context of this Handbook, an appraisal shall be taken to mean a

written statement independently and impartially prepared by a

qualified appraiser setting forth an opinion of defined value of

adequately described property as of a specific date, supported by

the presentation and analysis of relevant market information.

D. Well informed presumes buyers who have adequate knowledge of the

cost of renting and the relative merits of available properties,

residential construction costs and lot prices, the prices at

which equivalent properties are being sold or can be acquired,

and an awareness of the economic factors which cause changes in

price levels.

(2-3) E. Acting intelligently presupposes that knowledge of the observed

conditions will be used by typical buyers so that determinations

as to the wisdom of purchasing, or as to the price to be paid,

represent the most advantageous decision.

F. Voluntarily and without necessity assumes freedom for the choice

of actions. That is, that a decision to purchase is made solely

from recognition of advantages in so doing rather than from

necessity due to lack of alternatives. Also, that prospective

buyers are in a position to postpone purchasing.

G. Long-term use or investment views the benefits from the

usefulness or productivity of the property to an owner occupant

or landlord, from the date of appraisal to the end of the

remaining useful life of the property, rather than benefits from

a resale.

[]{#__RefHeading___Toc169057471 .anchor}**2-4. MARKET VALUE AND MARKET
PRICE**. \<[Top](#_top)\> A distinction is made between market

value as defined above and market price. Market price refers to the

amounts that buyers actually pay. Market value refers to the

probable prices properties will bring in a competitive open market.

A. Long Term Aspects. Since valuation for mortgage insurance

deals with the long term usefulness of a property, the discovery

of only the price that may be obtained in the market for the

property at the time the valuation is made would be inadequate as

the sole conclusion on which to base the \"worth\" of anticipated

benefits. The definition of market value contemplates that HUD\'s

insurance of the loan secured by the property will be in place

for up to 30 years. The appraiser\'s conclusion as to value will

be, not what the property can be \"sold for,\" or \"bought for,\" but

the price that should be paid for it in view of its long-term

productiveness.

B. Market Prices. The level of market prices does not always

represent the point of view of buyers who are typical, well

informed, acting intelligently, voluntarily, without necessity,

interested solely in the future productivity of properties, and

acting under conditions of a fairly well balanced relationship

between factors of supply and demand.

C. Distinction Between Market Price and Value. Market price levels

and value levels may be identical only when there is a fairly

well balanced relationship between the supply of and demand for

residential properties. The appraiser must ascertain whether or

not there is a difference between market price levels and value

levels at the time a valuation is made. This determination

cannot be based on unsupported assumptions but must be based on

substantial data.

[]{#__RefHeading___Toc169057472 .anchor}**2-5. DISTINCTION BETWEEN COST
AND MARKET VALUE**. \<[Top](#_top)\> A distinction is also

made between cost and market value. Value depends on the extent of

utility in the future, while cost depends upon outlays for land,

labor, and materials which depend upon conditions that do not

necessarily deal with factors which create value. Costs are related

to value only in that they establish an upper limit of value, since a

typical buyer acting intelligently would not be warranted in paying

more for a property than the cost of producing an equivalent

property. The value of a property may be equal to its cost only in

the case of a building which is new and represents the highest and

best use for the site when there is a balanced relationship between

supply and demand. Since value and replacement cost can be equal,

estimates of replacement cost in new construction are used as upper

limits for estimates of value, thereby acting as controls on the

judgment of the appraiser. However, if there is not more than a

three percent differential, the higher estimate of the two may be

used. \"When market value exceeds replacement cost, the value must be

supported by substantial market data. This requires submitting more

than three comparable sales typically used on an appraisal report.\"

[]{#__RefHeading___Toc169057473 .anchor}**2-6. DEPRECIATION**.
\<[Top](#_top)\> Depreciation is defined as loss in value from any

cause whatever. Frequently the term is used in the narrow sense of

loss in value caused by physical deterioration, and sometimes it is

used to signify deterioration itself. It is essential to understand

the nature of the causes of depreciation, not because of any

necessity to measure the amount of depreciation which has occurred

since the completion of a building, but because of the need to

estimate how these forces will probably affect utility or

desirability in the future.

[]{#__RefHeading___Toc169057474 .anchor}**2-7. OBSOLESCENCE**.
\<[Top](#_top)\> Obsolescence refers to those changes in usefulness of

structures in certain neighborhoods which cause them to become less

desirable or less useful. It operates to terminate the economic life

of a building. Obsolescence does not affect physical life as it does

not cause deterioration. It has greater significance in valuation

than does deterioration. It is caused by:

A. FUNCTIONAL

1\) New inventions and discoveries;

2\) Changes in the preferences and tastes of the public, with regard

to styles of architecture, geographical locations as places of

residence, sizes of rooms, heights of ceilings, the extent of

mechanical equipment, such as plumbing and heating, etc.;

B. ECONOMIC

1\) The infiltration of inharmonious land uses, as when commercial

and industrial uses are introduced into residential

neighborhoods,

(2-7) 2) The failure of substantial numbers of property owners in the

neighborhood to maintain their properties in good condition; and

3\) Changes in land values which result from changes in the highest

and best uses for which land is suited.

[]{#__RefHeading___Toc169057475 .anchor}**2-8. DETERIORATION**.
\<[Top](#_top)\> Deterioration is the decay and disintegration which

takes place in structures with the passage of time. Deterioration is

caused by natural forces, by the elements, and by use. Deterioration

operates to terminate the physical life of a building. Both

deterioration and obsolescence cause a lessening of utility and

thereby result in depreciation, that is, loss in value. The forces

which cause deterioration and obsolescence operate continuously.

Even though they may or may not operate in the future in the same

manner as in the past, greater accuracy in estimating how they may

operate in the future is attained by studying the manner in which

they have operated in the past.

#  SECTION 2 - BASIC PRINCIPLES OF VALUATION

[]{#__RefHeading___Toc169057477 .anchor}**2-9. VALUATION PRINCIPLES**.
\<[Top](#_top)\> There are certain principles used in the

appraisal of residential properties. These include:

A. Principle of Supply and Demand. The demand for a commodity is

created by scarcity. The greater the supply of a commodity

available, the lower will be its value.

B. Principle of Change. Nothing remains static. Value of a

property is derived from its future, not its past. The appraiser

must be aware of change, and any of the indications of change.

The appraiser must be aware of the stage a particular

neighborhood is in, and be able to define its position in its

life cycle.

C. Principle of Competition. In an active real estate area, high

profits to one or more builders attract competition.

D. Principle of Conformity. To obtain its maximum value, the

property must conform in general terms to its existing

surroundings in size, age, condition and style, and should

attract an occupant of similar economic status.

E. Principle of Increasing and Decreasing Returns. The value of the

property is governed by the contribution made by the tour agents

of production: labor or wages, management (coordination),

capital investment in building and equipment, and the land. This

principle affirms that larger amounts of the agents of production

will produce greater net income up to a certain point. At this

point, the maximum value will have been developed. Any

additional expenditures will not produce a return commensurate

with the additional investments.

F. Principle of Contribution. The principle of contribution is

actually the principle of increasing and decreasing returns

applied to a portion or portions of a real property. According

to the principle of contribution, the value of an item of

production is measured by its contribution to the net return of

the enterprise. Enterprise in this sense means the combination

of all items of production such as land, buildings, and all other

improvements.

G. Principle of Substitution. A buyer, in any case, is not

warranted in paying any more than substitute properties would

currently cost to acquire.

(2-9) A substitute property is one which affords advantages equal to

the one under examination and is also subject to equal

disadvantages. The substitute may be an existing property or it

may be a duplicate which may be had by acquiring a site and

constructing upon it new building improvements.

H. Principle of Highest and Best Use. The highest and best use of a

real estate site is that use or succession of uses which makes

the land most productive. In determining highest and best use,

the test is to discover which program of future use is capable of

developing the highest return on the land over a substantial

period of time. Highest and best use does not refer to a

building of the greatest size that someone could be induced to

erect. The concept of highest and best use is without meaning

unless building improvements having different functional designs

are included in the comparison of available uses.

[]{#__RefHeading___Toc169057478 .anchor}**2-10. BASIC VALUATION
PROCESS**. \<[Top](#_top)\> The purpose of valuation, definition of

value, valuation principles, and the practical limitations of

appraisal data dictate the basic valuation process. The process

embraces:

A. A study of the future use of the property and of the motives

of possible prospective owners;

B. A forecast representing the most probable series of expected

future returns to be derived from continuous ownership of the

property; and

C. An analysis which converts the expected returns into a

present price, that is, an estimate of value.

[]{#__RefHeading___Toc169057479 .anchor}**2-11. DETERMINATION OF RIGHTS
INCLUDED IN PROPERTY**. \<[Top](#_top)\> The word property

refers to rights which are possessed through acquisition of title,

that is of ownership. The concept of ownership embraces the rights

of possession, control, enjoyment, and disposition. It is these

rights in relation to a specific property that must be valued. The

rights must be known before they can be valued. The extent of the

rights depends upon the nature of the title that will be held by the

party whose rights are being valued.

A. Fee Simple Title. Fee simple absolute may be defined as \"the

largest possible estate in real property.\" There are other forms

of holding title to real property, such as fee determinable and

conditional. There are also various ways of holding title such

as life estates and remainders, joint tenancy, and tenancy by the

entirety. Regardless of the nature of title, the rights of an

owner even though exclusive, are never absolute for they are

always subject to the rights of the sovereign authority, such as

the right to tax, to regulate and control as by zoning ordinances

or other legislative enactments, and the right of eminent domain.

(2-11) B. Easements and Other Restrictions to Rights. If a title is

encumbered the rights are correspondingly restricted and may be

less valuable, depending upon the nature of the encumbrances.

Examples are encumbrances in the nature of easements,

reservations, restrictions, and rights-of-way.

C. Lessee, Lessor Rights. The term \"property\" may refer only to

the rights established by a lease. A lease is an agreement

under which the tenant (Lessee) acquires certain rights in a

real property for a designated period of time from the Landlord

(Lessor). The Lessor is usually, but not always, the owner of a

property. The terms and conditions of a lease must be

ascertained before the lessee\'s or lessor\'s \"property\" can be

valued.

D. Delineation of Rights as a Prerequisite to the Value Estimate.

Property rights generally include the right to use and occupy,

the right to lease to others, and the right to encumber or sell.

The exercise of these various rights results in the realization

of benefits. The extent and nature of the rights determine the

extent and nature of the benefits which, when compared to other

properties that contain the same rights and benefits, indicate

the value to be ascribed to the property or rights to the

property. The benefits cannot be valued except in consideration

of certain assumed characteristics and motives for ownership,

such as the right to occupy, or to lease, or to mortgage or sell

that vests in any owner holding title in fee simple

unencumbered. An owner might occupy the property and value it

because of its desirability as a place of residence for his/her

family, or an owner might value the property because of the net

rental he/she can realize from it. After delineating the

property, or rights to be appraised, appraisers are required to

value them from the point of view of typical buyers to whom the

property exerts its strongest appeal.

[]{#__RefHeading___Toc169057480 .anchor}**2-12. ESTIMATION OF RETURNS
FROM PROPERTY**. \<[Top](#_top)\> Returns from property relate

to either future direct services or the amenities which will be

enjoyed by an owner-occupant, or to dollar incomes which are the

source of value to an investor. The forecast must embrace the

entire future. It is incomplete if it includes only a forecast of

services or returns which are expected to accrue during the next

year, a typical early year, or \"on the average\" in early years.

Future services of properties are best conceived if they are

visualized as being in the form of a flow of returns. The returns

will be periodic services which include shelter, enjoyment and pride

of ownership, or net dollar income. All forms of returns should be

considered as a flow of benefits, whether they take the form of

direct satisfactions or dollars.

A. Trend and Flow of Returns. In urban residential real estate,

the flow of returns is present only when the site is occupied by

useful buildings or other programs of use. Undeveloped vacant

land is presumed to become productive shortly after the

completion of

(2-12) construction. Typically, the flow of returns will rise rapidly

to a maximum rate in the early life of the improvements and

gradually decline during midlife and late life until the

improvements have finally lost profitable usefulness and the flow

of returns is only large enough to justify purchase of the

property as vacant land. (However, see Gentrification, page 4-6.)

B. Net Return. The difference between the value of total services

or total revenues of a property, and the expenses and taxes, is

the net return. As the value of a property arises from its

capacity to produce net returns, the characteristics of the

future net income stream must be forecast in valuation.

1\) The future net income stream has three characteristics:

a\. Quantity, or the size of the income stream at the time

of appraisal and thereafter;

b\. Quality, or the possible fluctuation in size of the

income stream; and

c\. Duration, or the period of time during which the income

stream in any size will endure.

2\) Physical deterioration and obsolescence will decrease the

average amount of net returns in the future, thereby

decreasing the margin between amounts of net returns and the

periodic amounts which represent a fair return on the value

of the land. The services of buildings are limited to

duration owing to the fact that buildings will eventually

become useless due to the action of forces which cause

deterioration, disintegration, and obsolescence. Therefore,

the portion of the net income attributable to the building,

whether measured in services or dollars, is not only of

limited duration but subject to decline during the period of

its continuance. Gradually, the value of improved property

may decline until eventually only land value remains. At

that time, the building has reached the end of its economic

life.

[]{#__RefHeading___Toc169057481 .anchor}**2-13. OVERIMPROVEMENT AND
UNDERIMPROVEMENT**. \<[Top](#_top)\> An overimprovement is an

improvement so costly or so large as to produce land returns lower

than those which could have been produced on the same site by a

smaller or less costly improvement. An underimprovement is an

improvement which, because of its size or cost, produces a land

return less than could have been produced on the same site by some

larger or more costly improvement. Both overimprovement and

underimprovement fail to develop fully the potential capacity of the

site. The estimated market price of the site is not modified or

changed in instances of over or underimprovement, but the total value

of a property may be adversely affected. (Principle of Highest and

Best Use.)

[]{#__RefHeading___Toc169057482 .anchor}**2-14. DWELLINGS ON HIGHER-USE
SITES**. \<[Top](#_top)\> There are cases in which a property

to be appraised consists of a single-family dwelling upon a lot

suitable at the time for commercial or multifamily residential use.

A. If a site used for a residence is found to be zoned for business

use or if it fronts upon a street, portions of which are being

devoted to commercial purposes, the estimated market price

assigned to the lot should not be equal to the estimated market

price of another nearby site which actually is being profitably

used for commercial purposes even though at the time the highest

and best use of the subject lot is for commercial use. The lot

value assigned shall be for residential use, not commercial use.

[]{#__RefHeading___Toc169057483 .anchor}**2-15. MECHANICAL EQUIPMENT AND
ACCESSORIES**. \<[Top](#_top)\> Equipment which is part of the

real estate is included in value if the equipment is appropriate for

the dwelling. If, however, the equipment is too elaborate in

relation to the property, or if the typical buyer cannot afford the

cost of operating the equipment, it will not enhance the value of the

property to the full extent of its cost. Examples might be such

things as swimming pools, saunas, etc. The appraiser must determine

to what extent, if at all, the value of the property is enhanced by

the equipment. In cases involving rental properties, special

mechanical equipment enhances value only to the extent that it

increases net income. This applies to existing equipment as well as

to new equipment proposed to be added.

#  SECTION 3 - ACCURACY IN VALUATION

[]{#__RefHeading___Toc169057485 .anchor}**2-16. ACCURACY IN VALUATION**.
\<[Top](#_top)\> Accuracy in valuation is dependent on the

quality and adequacy of the supporting data and the degree of

proficiency with which the data items are analyzed. Incorrectness or

inaccuracy of valuations result from various causes, such as:

A. Misconception of the objective and purpose for which the

valuation estimate is made.

B. Lack of judgment and experience.

C. Haste and carelessness.

D. Inadequate data or data of poor quality.

E. Incorrect interpretation of data

F. Incorrect method of valuation.

G. Faulty application of correct method.

H. Influence on appraiser.

The valuation process requires gathering, analyzing and

interpreting a great volume and variety of data. One must avoid

merely corroborating a predetermined unsupported conclusion.

Also, because the necessary data are gathered piecemeal, one is

in danger of assigning greater importance to some of the data

than they are rightly entitled to receive, thus reaching a

conclusion which is premature and unsound. Opinions with respect

to values should take form during the process of the appraisal by

direct and simultaneous comprehension of all factors as much as

by the detailed method itself.

[]{#__RefHeading___Toc169057486 .anchor}**2-17. PLAUSIBILITY**.
\<[Top](#_top)\> Accuracy is derived only when the integral and final

estimates are characterized by plausibility. Estimates should always

be set at the most reasonable, most fair, and most likely amounts, as

opposed to placing them at possible extremes.

[]{#__RefHeading___Toc169057487 .anchor}**2-18. BRACKETING**.
\<[Top](#_top)\> In establishing criteria to determine plausibility and

probability, they are tested in terms of possible upper and possible

lower limits of items, thereby \"bracketing\" the zone within which the

final estimate should lie. Next, the limits are narrowed as much as

(2-18) possible, and a figure between the narrowed limits is selected as

the estimate. It may not always be precisely midway between the

limits, but in general the bracketing process does conclude with a

strong presumption of correctness attaching to some one level of

estimate.

For example, the comparable sales selected should be within the

value range of the neighborhood. This is the first step in

\"bracketing.\" Next, each comparable must be adjusted to the subject

which further narrows down the differences between the comparables

and provides another bracket within which the market value falls.

[]{#__RefHeading___Toc169057488 .anchor}**2-19. FINAL CONCLUSION**.
\<[Top](#_top)\> The estimate of value is the price which a

well-informed typical buyer would pay for the property appraised

rather than the maximum price which could be obtained if the

property were offered for sale. Consideration will be given the

prices at which other equally desirable properties of like

characteristics can be obtained from well informed sellers who,

when selling, would be acting intelligently, voluntarily, and

without necessity. The advantages of renting will be contrasted

with the advantages of buying, as indicated by comparison of

the cost of renting and cost of buying, and many other items will

be considered to which attention is drawn in this handbook. The

buyer will not be especially interested in or greatly influenced by

what the property has cost someone else in times past, although the

buyer will desire such information. The buyer will be vitally

interested in the ability of the property to produce a stream of

future benefits for him/her if, being a typical prospective owner,

he/she were to purchase it. The characteristics of this stream of

benefits - its present size, the extent of any probable diminution

in its size in the future, the certainty of the continuation of

the flowing stream, and the length of the period during which the

flow may be expected to continue - will determine the price which

the buyer is warranted in paying and, hence, the value of the

property.

A. Undervaluation and Overvaluation. Unduly liberal or

conservative attitudes should not be allowed to influence the

quality of an estimate used in valuation. Undervaluation and

overvaluation must be avoided. There is no virtue in

undervaluation of properties, and great risk of loss to all

concerned is introduced by overvaluation.

B. Speculative Elements. Speculative elements cannot be considered

as enhancing the security of residential loans. These elements

not only contribute to wide fluctuations in market prices, but

increase the risk of loss to mortgagees who permit them to creep

into the valuations of properties upon which they make loans.

# CHAPTER 3. DATA

[]{#__RefHeading___Toc169057490 .anchor}**3-1. GENERAL**.
\<[Top](#_top)\> This Chapter describes the data records which should be

established, maintained and used by Valuation Branch personnel of

HUD Field Offices. Direct Endorsement Mortgagee Underwriters should

also have this type of data as needed available to them in

evaluating appraisal reports.

[]{#__RefHeading___Toc169057491 .anchor}**3-2. COST DATA**.
\<[Top](#_top)\> The Marshall and Swift Cost Handbook contains cost data

used by appraisers to estimate the replacement cost of on-site

improvements.

[]{#__RefHeading___Toc169057492 .anchor}**3-3. MARKET DATA**.
\<[Top](#_top)\> Sufficient current sales data must be maintained in

each Field Office and Direct Endorsement Mortgagee Underwriter\'s

office. Field Offices must contract for sales data from the most

reliable sources in order to provide staff review appraisers with

the necessary tools to perform their function. This data may

consist of non-HUD/FHA residential sales, rental unit comparables,

or vacant land sales. Fee panel appraisers must arrange for their

own sources of data.

[]{#__RefHeading___Toc169057493 .anchor}**3-4. MARKETING EXPENSE**.
\<[Top](#_top)\> It is the responsibility of the Chief Appraiser

to have assembled sufficient data to reveal the amount of marketing

expense that may properly be included in the Estimate of Replacement

Cost. The information will be revised annually or more frequently

if marketing expenses change sufficiently to warrant a revision.

[]{#__RefHeading___Toc169057494 .anchor}**3-5. MAPS**. \<[Top](#_top)\>
A file of maps useful in processing cases shall be

maintained. In some instances, combinations of data may be shown on

the same map.

A. Useful Data Maps.

1\) Maps of cities, counties, or other political subdivisions

showing appraisal area boundaries.

2\) Maps showing information such as street names,

transportation lines, highways, bridges, tunnels, ferries,

locations of schools and churches, political boundaries,

topographical features, parks, playgrounds and cemeteries.

3\) Zoning maps and other maps showing the location of

subdivisions and rental housing projects.

(3-5) 4) Maps showing the locations of public utilities including

storm and sanitary sewer lines, gas and water mains, street

lighting, and electric power lines, if available.

5\) Maps showing the extent of sub-surface mining operations and

possible subsidence areas, where needed.

6\) Maps showing areas subject to flood, fumes, and other

detriments.

7\) Maps showing areas with high underground water tables,

unstable soil conditions, filled-in areas, and poor surface

drainage.

8\) Maps showing information such as boundaries of school

districts, special assessment districts, irrigation

districts, fire zones, and fire and police protected zones.

9\) Land area and population density maps.

10\) Land use survey maps showing the nature of land uses in

selected cities.

11\) Copies of the latest noise contours and future projections

along with the clear zone markings for all commercial

airports. In addition, the Field Offices must have copies

of the latest air installations compatible use zone for all

military installations with their jurisdiction. These

studies will include not only present, but future projected

noise contours, clear zone maps and accident potential zone

maps. When advice and guidance are required in the analysis

of residential properties near military airports, the

request will be made of the commander of the military base.

B. Sources of Maps.

1\) Map publishers.

2\) Public offices of government, such as those of the city or

county engineer, school board, zoning commission, planning

commission, park commission, and tax assessor.

3\) Geological Survey, U.S. Department of the Interior.

4\) U.S. Bureau of the Census.

5\) Post Office Department.

6\) Department of Agriculture soils maps.

(3-5) 7) Federal and State Mining Bureaus.

8\) Department of the Interior.

9\) FEMA flood maps.

[]{#__RefHeading___Toc169057495 .anchor}**3-6. POPULATION AND HOUSING
STATISTICS**. \<[Top](#_top)\> This information should contain

data useful in the preparation of location, subdivision and market

analyses, economic life estimates, and valuations. This information

may be maintained by the Economic Market Analysis Division.

A. Examples of Data are as follows:

1\) The current final reports on population and those on

housing as prepared by the U.S. Bureau of the Census.

Special reports may be available for specific political

subdivisions or communities within the Field Office

jurisdiction.

2\) Building Permit Data. Bureau of the Census (C-42

Series). Information on new construction in selected

metropolitan areas, by type of structure.

3\) HUD Market Analyses.

B. Sources of Population and Housing Data:

1\) Population and Housing Data prepared by the Division of

Research and Statistics, Department of Housing and Urban

Development.

2\) Private Data and Planning Organizations.

3\) Utility Company Research Bureaus.

4\) Bureau of Vital Statistics.

5\) City Directories.

6\) Real Estate Boards.

7\) U. S. and Local Chamber of Commerce Publications.

8\) State or County Zoning and/or Planning Commissions.

9\) University Research Bureaus.

(3-6) 10) Other Governmental Agencies including Redevelopment and

Urban Renewal Agencies.

11\) Boards of Education.

[]{#__RefHeading___Toc169057496 .anchor}**3-7. DATA REQUIREMENTS AS
RELATED TO THE MODIFIED COST APPROACH**. \<[Top](#_top)\> This

information must be screened, compiled and reviewed for accuracy and

disseminated to all appraisers. Verification and comparison of

substantial amounts of the data are necessary to assure validity.

These data will be assembled and provided to appraisers and Direct

Endorsement Mortgagee Underwriters. They must be updated as needed

to assure reliability. Data are required relating to the four items

described below:

A. Expenses incurred in connection with purchase from the original

owner (recording charges, transfer taxes and any other expenses

of purchase).

B. Interim Financing Expense (interest on borrowed money necessary

to carry the property until resale) expressed as a percentage

which will be applied to the purchase or option price.

C. Expenses incurred in connection with holding the property

awaiting sale and closing (such as taxes, insurance, water and

heating costs, grass cutting, etc.). These may or may not be

elements of expense, particularly if in the typical transaction

the sale is consummated early or the speculator rents the

property during the sale period.

D. Typical brokers commission charges (percentage) on properties

of this type.

This type of data may be collected by contacting local banks,

management firms and other legitimate businesses engaged in the

rehabilitation or resale of homes with or without HUD assistance.

[]{#__RefHeading___Toc169057497 .anchor}**3-8. HUD HOUSING MARKET
REPORTS**. \<[Top](#_top)\> Analytical reports on selected local

housing markets are prepared by HUD Regional Office Economists.

These reports contain a wide range of data and information from

sources (unpublished as well as published) relating to economic

activities, population and households, incomes, residential

construction and vacancies, unsold inventory of new houses, and

current conditions in the sales and rental segments of the housing

market. The conclusions of these studies are concerned with

prospective demand for sales and rental housing in quantitative and

qualitative terms.

[]{#__RefHeading___Toc169057498 .anchor}**3-9. LAND USE REGULATIONS**.
\<[Top](#_top)\> This file should contain data on general

legal restrictions and regulations pertaining to the use of land

within the Field Office jurisdiction.

(3-9) A. Data in this file consists of:

1\) Zoning ordinances.

2\) Planning regulations promulgated by planning

commissions having legal status.

3\) Fire and police protection regulations.

B. Sources of data include:

1\) Planning Commissions.

2\) City and County Engineers\' Offices.

3\) Assessment Bureaus.

4\) Tax Collector\'s Offices.

5\) Fire and Police Departments.

6\) Recording Offices.

7\) Subdivision Developers.

[]{#__RefHeading___Toc169057499 .anchor}**3-10. SPECIAL CONDITIONS
AFFECTING APPRAISAL ASSIGNMENT AREAS**. \<[Top](#_top)\> This file

contains pertinent information concerning conditions which may

affect properties within the appraisal areas. Examples of these

exhibits include but are not limited to:

A. Outline map of appraisal areas.

B. Estimated Market Price of typical sites with supporting data.

C. Real estate tax and assessment information, descriptive

boundaries of water and/or sewer districts, school districts,

etc.

D. Newspaper accounts, correspondence, or other informative

material concerning the area; i.e., domestic water during dry

spells, proposed relocation of highways, etc.

[]{#__RefHeading___Toc169057500 .anchor}**3-11. SUBDIVISIONS**.
\<[Top](#_top)\> The data necessary for the valuation analysis of a

subdivision proposal should be available within specifically

identified files. In addition to data normally required in the

valuation function, files containing site analysis and planning aids

will be maintained.

(3-11) A. Approved Local Jurisdiction. A current list of local

jurisdictions which have been approved under the Local Area

Certification Procedure will be maintained in the Valuation

Section. In addition to the current approved list, a file

should be maintained on each jurisdiction whether it has been

approved or not. This file should contain a record of the Field

Office survey of the jurisdiction and of the current processing.

The latest Local Area Study Worksheet as shown in HUD Handbook

4135.1 and appropriate exhibits should be kept in each file.

B. Subdivision Site Binders. Data, recommendations, and office

determinations regarding specific subdivision proposals will be

prepared by the Valuation Branch for each proposal accepted for

analysis by the Field Office. This file will be maintained by

the Valuation Branch in the feasibility and preconstruction

exhibit stages. Upon the satisfactory completion of these

stages of analysis, the subdivision site binder will be routed

to the Architectural Section. The file will be maintained in

the Architectural Section for two years; then sent to the

Federal Records Center. The file will be made available to the

processing appraiser for review at such time as he/she is

assigned the valuation of properties incorporated into this

file.

C. Sales. Information concerning non-HUD sales can be obtained

from parties to the transaction, real estate firms, newspapers,

and public records.

D. Soft Market Data. It is the responsibility of Valuation Branch

personnel and fee panel appraisers to report all conditions

which indicate an oversupply of housing within the Field Office

jurisdiction.

1\) Written reports of these conditions should be delivered to

the Chief Appraiser by all fee panel appraisers and field

reviewers who observe such conditions in the field.

2\) Information to be observed and reported will be that

relating to such conditions as an excessive inventory of

unsold houses, prolonged marketing time, price declines,

unusual sales promotion devices, rent concessions, an

increase in dwelling vacancies, increase in defaults and

foreclosures and an abnormally slow rate of absorption in

new subdivisions, whether FHA, VA or conventional.

[]{#__RefHeading___Toc169057501 .anchor}**3-12. CLOSING COST DATA**.
\<[Top](#_top)\> Closing costs are related to the purchase of a

property, and are the total of all minimum costs typically incurred

in the transfer and acquisition of title which must be paid in

addition to the contract or sales price of the property.

(3-12) A. Some of the closing costs commonly included for the buyer are

for items such as the following:

1\) Evidence of Title.

2\) Drawing, recording, and notarizing conveyance instruments.

3\) Financing costs as follows:

a\. Appraisal fee and credit report.

b\. Discounts for refinancing.

c\. Mortgagee\'s origination fee.

d\. Drawing, notarizing, and recording mortgage and note.

B. To be allowable these costs must be customary and reasonable

charges in the locality. The basis for estimating the

appropriate amount for any item will be the lowest cost

prevailing in the locality. There are no specified dollar

limits on the amount which the mortgagee may charge for these

services. Rather, whatever charge is reasonable and customary

in the area in which the transaction takes place, may be

allowed. Field Office Managers are given wide discretion in

determining what fees are reasonable and customary in the areas

for which they are responsible and are to notify the appropriate

lending industry as to their determination. Any payment of

expenses incidental to the ownership or use of the property such

as prepaid taxes, insurance, or charges for public utility

services will not be included as part of closing costs.

C. The Chief Appraiser must assemble enough data to determine to

the extent possible the amount of closing costs that may be

included in the estimated acquisition cost of equivalent

property. Sources of information for closing cost data include

title companies, abstract attorneys, recorders\' offices,

mortgagees, and mortgage credit closing cost data file.

Examples of closing cost items and preparation of the costs can

be found at the end of this Chapter. The HUD-1 Settlement

Statement of closing charges required by the Commitment for

Insurance is an important source of factual amounts currently

being charged. This information will be obtained from the

Closing Clerk and examined periodically as an aid to maintaining

a current schedule of closing costs.

[]{#__RefHeading___Toc169057502 .anchor}**3-13. TAXES AND SPECIAL
ASSESSMENTS**. \<[Top](#_top)\> These are real estate taxes and

assessments, and are based upon the assessed valuation for purposes

of taxation. Current tax levies and methods of assessment may be

secured from each political subdivision or from a centralized taxing

authority. Ratios of value to assessment should be secured and

verified.

[]{#__RefHeading___Toc169057503 .anchor}**3-14. NON-PREPAYABLE SPECIAL
ASSESSMENTS**. \<[Top](#_top)\> Non-prepayable special

assessments are recorded in conjunction with general taxes. They

should be set up as to reason, method of payment, and affected area.

When items such as water (other than consumption charges), sewer, or

school, etc., are included in a general tax rate, they are not to be

separated under special assessments. Special assessments should be

shown as those rates that are over and above the set tax levy and

those that are imposed by a method other than by assessment, such as

per front foot, per square foot area, per water outlet, etc.

[]{#__RefHeading___Toc169057504 .anchor}**3-15. PREPAYABLE SPECIAL
ASSESSMENTS**. \<[Top](#_top)\> Prepayable special assessments are

recorded as to (1) area affected, (2) reason for the assessments,

\(3\) remaining term, (4) interest rate, and any other pertinent

detail.

A. Data Regarding Special Assessments, either non-prepayable or

prepayable, which are not yet effective but are imminent, should

be analyzed at the earliest possible time. In those

jurisdictions affected, homestead exemption data should also be

included under this expense feature.

B. Dissemination of this Material to appropriate personnel will be

accomplished by schedule showing as a minimum, location,

assessments, and ratio of annual tax to estimated market price

of the property.

[]{#__RefHeading___Toc169057505 .anchor}**3-16. EQUIPMENT IN VALUE
ITEMS**. \<[Top](#_top)\> Insured mortgages are required to be

secured by a first lien on real property. This requirement is

satisfied if the items of property or component of property that is

in question is acceptable as part of the mortgaged security by local

law, custom, or is specifically made acceptable as part of the

mortgaged security by HUD.

The Equipment List shall not include equipment or fixtures which are

part of a major component of the house as these components are

assumed to be real estate and do not require special delineation as

such. Also, excluded from this classification are items which by

established custom are supplied by the occupant and removed when the

property is vacated, and chattels which are by law precluded from

becoming realty.

[]{#__RefHeading___Toc169057506 .anchor}**3-17. MISCELLANEOUS VALUATION
DATA**. \<[Top](#_top)\> Files shall be maintained for

miscellaneous data which are otherwise unclassified. These will

include memoranda, instructional letters, and files on any special

conditions that may exist. The following are examples of special

files that may be needed.

A. A compendium for reference material.

B. Processing Directives issued by Headquarters.

C. Direct Endorsement Updates.

(3-17) D. Direct Endorsement Underwriters Updates.

E. CHUMS Updates.

F. Airport Noise Studies.

G. Areas of Septic Tank Failure.

H. Hazardous Waste Sites.

I. Flood or Unacceptable Soil Condition Areas.

J. Section 223(e) Areas.

K. Speculator Dominated Areas.

L. Mortgagee Letters.

M. HUD Notices.

# CHAPTER 4. LOCATION ANALYSIS

#  SECTION 1 - NEIGHBORHOOD CHARACTERISTICS

[]{#__RefHeading___Toc169057509 .anchor}**4-1. PURPOSE OF LOCATION
ANALYSIS**. \<[Top](#_top)\> The purpose of Location Analysis is to

identify the characteristics of location which affect the value and

economic life of a specific property.

[]{#__RefHeading___Toc169057510 .anchor}**4-2. GENERAL**.
\<[Top](#_top)\> The analysis of location requires a determination of

desirability and utility of the site and the degree and extent to

which the site, by reason of its environmental influences, shares in

the market for comparable and competitive sites in the community.

The analysis of location requires a forecast of the changes likely to

be experienced at the site due to probable future trends. An

appraisal of the present situation and knowledge of the trends which

affect the valuation of real property is necessary to properly

analyze the location. The principle of change is fundamental to real

estate appraising and to the analysis of a location. Value is

created and modified by economic, social and governmental changes

which occur outside of the property itself. It is necessary to

predict the direction of the trend and determine the future effect it

will have on property values.

[]{#__RefHeading___Toc169057511 .anchor}**4-3. COMPETITIVE LOCATIONS**.
\<[Top](#_top)\> Locations are competitive when they are

improved with, or appropriate for, residential properties that are

approximately similar in accommodations, and are within a sales price

range or rental range that proves acceptable to typical residents or

prospective occupants.

[]{#__RefHeading___Toc169057512 .anchor}**4-4. THE METHOD OF ANALYSIS**.
\<[Top](#_top)\> Each feature of the location is compared

with the same feature of competitive locations in the community. An

acceptable location must be related to the needs of the prospective

occupants and to the alternatives available to them in other

competitive locations.

[]{#__RefHeading___Toc169057513 .anchor}**4-5. CONSIDERATION IN THE
ANALYSIS OF LOCATION**. \<[Top](#_top)\> In the analysis of

location, no cognizance is taken of the character or quality of the

building improvements which exist on the site or which are proposed

in the application for mortgage insurance. A vacant site will,

therefore, have the same location evaluation of quality as an

improved site under similar environmental influences.

[]{#__RefHeading___Toc169057514 .anchor}**4-6. ECONOMIC TRENDS**.
\<[Top](#_top)\> Consideration must be given to economic trends of

the neighborhood, such as:

A. Industrial, commercial, agricultural and retail sales activity.

B. Price and wage levels - purchasing power of individuals.

(4-6) C. Employment.

D. Supply and demand for living units.

E. Taxation levels.

F. Mortgage interest rates.

G. Building costs.

H. Population change.

I. Activity in the real estate sales market.

[]{#__RefHeading___Toc169057515 .anchor}**4-7. LAND USES**.
\<[Top](#_top)\> Location Analysis involves a determination of the
effect

of actual and potential neighborhood land uses upon the subject

location. A location which contains the proper balance of land

usage such as residential, commercial, parks, schools and

playgrounds, enhances the value and the economic security of a

property. The following are factors which form the pattern for

present and future land uses:

A. Zoning. Appropriate and well drawn zoning ordinances and land

use controls which receive public approval and are strictly

enforced will provide one of the means of protecting residential

locations from adverse influences that diminish the desirability

of sites.

B. Protective Covenants. Properly drawn protective covenants have

proved more effective than zoning ordinances in providing

protection from adverse environmental influences; and, when

combined with proper zoning, provide maximum legal protection to

assure that a developed residential area will maintain desirable

characteristics, or that a proposed, or partially built-up

neighborhood will develop in a desirable manner. The protective

covenants should be superior to any mortgage and should be

binding on all parties and all persons claiming under them.

C. Identification of Inharmonious Land Uses. Inharmonious land

uses in the neighborhood must be identified. The present and

long term effect such uses will have on the market value and

economic life of the subject property must be defined. The

market value and remaining economic life must reflect these

influences. In situations where the inharmonious land uses

represent a serious detriment to either the health or safety of

the occupants or to the economic security of the property, the

application for mortgage insurance must be rejected.

(4-7) D. Natural Physical Features and Landscaping. Few, if any,

homeowners are oblivious the favorable topographic and site

features such as pleasing view, wooded lots, broad vistas, and

climatic advantages. Attractive street layouts and preservation

of natural attractiveness are characteristics of good

neighborhood design. Streets which have been laid out with

proper regard to drainage, land contours and traffic flow

increase the desirability of the neighborhood.

E. Attractiveness of Neighborhood Buildings. The appeal of a

location is strengthened if the buildings in a neighborhood are

attractive as a group and harmonize with one another and with

their physical surroundings. A pleasing variety that results in

harmoniously blended properties without monotonous repetition is

desirable. It has been demonstrated that a pleasing variety in

dwelling design need not be sacrificed in neighborhoods composed

of low-cost housing.

F. Neighborhood Character. Mobility and economic growth have

combined to alter neighborhood patterns. Shopping, recreation,

places of worship, schools and places of employment should he

reached with comparative ease. The lessened disparity between

income of professions and trades and of management and skilled

labor has contributed to a mingling of such families in stable

neighborhoods.

G. Character of Neighborhood Structures. In the analysis of this

element, the age, quality, obsolescence, and appropriateness of

typical properties in a neighborhood must be carefully studied.

These characteristics affect the stability and attractiveness of

the properties in the neighborhood. The analysis must take into

account the attitude of the user group as well as the

alternative choices available to the specific market under

consideration.

H. Effect of Age of Structures. Age of neighborhood structures is

not as important as the condition and maintenance of the

buildings, and the amount of rehabilitation which has taken

place or is taking place in the neighborhood. In any case, age

of structures in an area is not a cause for rejection of a

property.

[]{#__RefHeading___Toc169057516 .anchor}**4-8. COMMUNITY SERVICES**.
\<[Top](#_top)\> Community Services include commercial, civic

and social centers. For a neighborhood to remain stable and retain

a high degree of desirability it should be adequately served by

elementary and secondary schools, neighborhood shopping centers,

churches, playgrounds, parks, community halls, libraries, hospitals,

and theaters. Areas occupied by low income families will ordinarily

(4-8) require easier and less expensive access to these facilities.

Analysis of this feature gives consideration to: quality and

accessibility of schools; quality and accessibility of shopping

centers and quality and accessibility of community facilities such

as churches and recreation centers.

[]{#__RefHeading___Toc169057517 .anchor}**4-9. TRANSPORTATION**.
\<[Top](#_top)\> Ready access to places of employment, shopping

districts and centers, civic and social centers as well as to

adjacent neighborhoods in the area is a requisite of neighborhood

stability. The transportation requirements of all members of the

family must be considered. No single method of transportation

should be considered to the exclusion of all others:

[]{#__RefHeading___Toc169057518 .anchor}**4-10. UTILITIES AND
SERVICES**. \<[Top](#_top)\> Utilities and neighborhood services to be

considered are police and fire protection, telephone service,

electric, gas, garbage disposal, street lighting, water supply,

sewage disposal, drainage, street improvements and maintenance.

Some neighborhoods may not have all services, yet acceptability of

this feature may be warranted if the occupants do not consider the

lack of such services a deficiency too great to be acceptable. In

most metropolitan areas, subdivisions typically have hard surfaced

streets, concrete curbs, gutters and walks. Locations not having

these improvements would be at a competitive disadvantage. On the

other hand, in small communities the predominant street improvements

may be found to be gravel streets, grass swales, and no walks. If

improvements of this type have no adverse effect on marketability

they will be acceptable. In judging this feature a comparison is

made of the extent and quality of utilities, street improvements,

and other services available with those available in all other

competitive neighborhoods. The charges for utilities and services

are considered only when they produce advantages or disadvantages in

the location as compared with all other competitive locations in the

area. The cost is not considered when it is substantially the same

for all competitive neighborhoods. The cost of maintaining

individual sewage treatment and water systems will usually offset

the advantage of lower monthly cost of utilities.

[]{#__RefHeading___Toc169057519 .anchor}**4-11. SINGLE INDUSTRY
COMMUNITIES**. \<[Top](#_top)\>

A. In communities whose economy is dependent on a single industry,

proper underwriting requires a careful evaluation of the

long-term economic prospects of the industry, since a finding of

long-term economic soundness or a degree of risk acceptable to

HUD is required for all Title II programs. This problem may be

particularly acute in new communities whose single dominant

industry is based on the exploitation of a natural resource,

e.g., natural gas, oil, coal, etc., the supply of which may be

limited and, in particular, may not be sufficient to support the

economy of the area for a period at least as long as that of a

(4-11) typical HUD-insured mortgage. In such areas, there must be a

careful economic evaluation of the industry\'s prospects and

probable housing market impacts by EMAD and Valuation Branches

staff.

B. Handbook 4010.1, Definitions, Policy Statements and General

Rulings, \"Conditions Loading to Surplus Housing\" is applicable

to these situations.

C. While Headquarters\' referral procedure described for marginal

military installations is not required for single-industry

locations, market considerations are pertinent in single family

industry market areas.

[]{#__RefHeading___Toc169057520 .anchor}**4-12. STUDY OF FUTURE UTILITY
OF PROPERTY**. \<[Top](#_top)\>

A. The study of future utility includes:

1\) Selection of possible uses;

2\) Determination of uses in terms of alternative kinds of

possible typical buyers and differing motives of these

buyers; and

3\) Rejection of uses which are obviously lower or higher than

the most probable uses.

B. The study of the future uses and utility of a particular

property will lead the appraiser to its highest and best use.

[]{#__RefHeading___Toc169057521 .anchor}**4-13. NEIGHBORHOOD CHANGE**.
\<[Top](#_top)\> Residential areas in any city change in

desirability with the passage of a substantial period of time.

Population growth has been one of the main causes of the change

which residential districts experience.

(4-13) Infiltration of commercial, manufacturing, industrial

enterprises and other nonconforming uses in residential

sections, and the physical deterioration of buildings in these

sections are other obvious and common causes. Consideration

must be given to any such factors that cause decline in

desirability and utility of residential districts in order to

develop the greatest accuracy in valuation estimates.

A. Gentrification. There is a phenomenon which affects some older

declining neighborhoods which have not experienced heavy

commercial or industrial encroachment and which reverses the

decay and decline in values. This is known as \"Gentrification.\"

It is brought about by the immigration of people into a

deteriorating or renewed city area. In recent years many people

have recognized the craftsmanship and artisanship in some older

homes which cannot be found in new modern homes. Because of the

desirability of these features and the advantage of living in

town close to their places of employment, they have purchased

and restored them to their original classic beauty. As more and

more people follow suit, the neighborhood desirability and

values gradually increase to a point whereby the neighborhood

becomes once again viable and desirable.

B. Covenants and Zoning. Another area of concern to the appraiser

is the adequacy of existing covenants and zoning. Residential

neighborhoods in which zoning or covenants are lacking or are

not effectively enforced are often subject to a decline in

desirability.

[]{#__RefHeading___Toc169057522 .anchor}**4-14. MARKETABILITY**.
\<[Top](#_top)\> The demand for homeownership in a neighborhood is

directly related to the marketability of the homes within the

neighborhood or competitive neighborhoods. Data regarding

percentages of homeownership, vacancies and the marketing time of

the dwellings in a neighborhood helps the appraiser to determine the

strength of the demand and the extent of supply.

[]{#__RefHeading___Toc169057523 .anchor}**4-15. SMALL COMMUNITIES**.
\<[Top](#_top)\> There is no particular formula for use in

appraising properties in small communities. The factors affecting

mortgage risk and value are basically the same as those in large

cities, but there are also important differences which must be

recognized by the appraiser to avoid making errors. It is important

to understand that real estate patterns in small communities include

social and economic preferences which are dissimilar to those

encountered in larger towns and cities. Certain services and

conveniences desired by the urban dweller are not necessary or

desired by the homeowner who lives in a small community.

A. Small Community Market Preferences. The small town may have its

own set of standards. Architectural design, livability, style

of mechanical equipment, lot size and placement of structure,

nature of street improvements, and all features of the physical

property and environment must be judged in the light of local

acceptance of local standards and local preferences.

B. Rate of Marketability. The rate of marketability must be judged

by local standards. Market depth may be partially dependent

upon the number of farmers, ranchers, or pensioners who retire

and look to the community for homes, and a limited number of

merchants and professional persons. This total, combined with

the second generation populace, may increase the demand or serve

to maintain it at a fairly constant level. The sum total may be

(4-15) a numerically small annual demand for housing. However,

typically this demand may be on the market for a much longer

time before it sells than would be expected in the city, and no

modest price reduction would cause a quicker sale.

C. Mobility of People. Another factor is the mobility of people.

Industry sometimes moves to the small community and draws its

employees from other small communities in the surrounding area.

Improved highways and modern vehicles permit commuting distances

once considered unthinkable. Shopping facilities in attractive

centers outside the congested urban areas are as convenient to

the small town resident some miles distant as may be the central

business district to the urban resident. This widens the market

for small town properties. The purchaser may not be confined to

the few categories mentioned above, but may appear from any

point within the commuting radius. Thus, properties within

these towns may then be competitive, and market transactions in

one may be applicable to others.

D. Stagnant or Declining Growth. The small town in which all

semblance of former industrial or commercial activity is gone

presents different aspects. Its residences may be occupied by

retired persons, or families commuting to employment who live in

the town because of the low cost of housing. Current

transactions may involve repair or remodeling plans which will

produce a housing facility at far less than current replacement

costs of equivalent properties. Proposed construction may not

be economically feasible as long as existing properties are

available at very low prices.

[]{#__RefHeading___Toc169057524 .anchor}**4-16. OUTLYING LOCATIONS AND
ISOLATED SITES**. \<[Top](#_top)\> Areas outside of towns and

cities have shared in residential construction activity to a

considerable degree. The segment of the market interested in buying

in outlying locations compares the advantages and disadvantages of

other outlying locations. In many localities the rather strong

appeal of these outlying locations is evidenced by the activity of

the market for properties so located. In most instances, the sites

of outlying properties are larger than the sites of nearby town or

city properties. Some dwellings in outlying locations are

constructed on wooded sites or on land where the topography is such

that some natural protection is afforded against encroachment by

value destroying uses or influences; others are constructed on sites

taken from agricultural land. The presence of normal agricultural

use of land in the vicinity of an outlying site will not of itself

constitute a valid reason for finding the property ineligible as

mortgage security.

(4-16) Many people prefer outlying locations for the purpose of raising

horses or having a small hobby farm. Provided that the use of the

property such as raising horses or farming does not constitute the

primary income of the occupants, such locations are usually

acceptable under Section 203(b) rather than 203(i). Such sites may

be ten acres or more but are still considered in relation to the

typical size lots in the area.

However, if the size of the site is excessive, such as 30 acres in

an area where only ten acres is typical for that purpose, the excess

land is not considered in the appraisal nor included in the

mortgage.

[]{#__RefHeading___Toc169057525 .anchor}**4-17. ACCEPTABLE LOCATIONS
PURSUANT TO SECTION 223(e)**. \<[Top](#_top)\> Any older existing

community which is found unacceptable because of certain features

adversely affecting its location may be eligible pursuant to Section

223(e). (See HUD Handbook 4260.1 for a complete discussion.)

Special funds have been appropriated by the Congress for this

program since the insurance of mortgages in such areas constitutes a

higher risk than other localities. Therefore, the Chief Appraiser

in each field office should become acquainted with and be aware of

such neighborhoods so as to assure that the special high risk funds

are used for properties in such areas.

This is not to be confused with \"redlining.\" To redline is to

withhold home loan funds or insurance from neighborhoods considered

poor economic risks. HUD does not withhold insurance but rather

designates the insurance fund program which must be used in

connection with the insuring of loans in these areas.

A. The purpose of Section 223(e) is to permit the use of HUD

mortgage insurance in older, declining urban areas, in order to

provide housing for low- and moderate-income families and to

contribute to the upgrading or stabilization of such areas.

B. Environmental factors which render a property unacceptable

because of conditions which constitute a danger to the health

and safety of the occupants or to the preservation of the

property are not subject to waiver under Section 223(e).

C. The physical life of the property must be sufficient to permit

the long-term mortgage. The substitution of physical life for

economic life is justified because the Section 223(e) special

risk provisions compensate for those environmental factors which

adversely affect the property, thus permitting a mortgage of up

to 30 years (See paragraphs 2-7 and 2-8). At the same time, HUD

should not be insuring loans on homes that have a high degree of

certainty of failure due to any circumstances.

[]{#__RefHeading___Toc169057526 .anchor}**4-18. CONSIDERATION OF GENERAL
TAXES AND SPECIAL ASSESSMENTS**. \<[Top](#_top)\> General

real estate taxes related to specific locations are a recurring

periodic expense in the ownership of taxable real property and must

always be taken into account in the estimate of value. Also,

special assessments of various types are frequently an additional

expense to the ownership of certain property and when encountered

must similarly be taken into account.

A. General Taxes. In most communities general tax levels are

fairly well equalized and sales prices and rentals reflect the

effect of the burden. In other areas, and occasionally because

of differences in contiguous taxing jurisdictions, wide

variations in the level of assessments for similar properties

are encountered.

1\) In such cases the effect on the cost of ownership and upon

net income expectancy must be recognized and all market

data should be carefully scrutinized to ascertain the

differences in prices and rentals which are attributable to

the varying level of assessments.

2\) Where the general tax levels are not equalized and market

data do not reflect uniformly the effect of general taxes,

the data must be adjusted to compensate for the

differences.

[]{#__RefHeading___Toc169057527 .anchor}**4-19. LEVEL OF TAXES AND
ASSESSMENTS**. \<[Top](#_top)\> A determination is made as to the

relative effect of the tax and special assessment burden upon the

desirability of the location. The elements considered are:

A. The Tax Burden. The only concern is to determine the relative

advantages or disadvantages of the tax burden on the subject

location in comparison with all other competitive locations.

The weight of the general tax burden does not influence the

conclusion if the tax burden on a location is substantially the

same as that borne by competitive locations.

1\) The basis of assessment for taxation purposes, and often

the tax rate itself, may vary for different neighborhoods

within a community.

2\) If the location is in a neighborhood which is receiving

preferential treatment with respect to assessments or tax

rates and it is believed that the condition will continue,

the beneficial effect will be recognized regardless of the

reasons for the condition.

B. Unassessed Properties. Where the tax burden is unknown, as with

a proposed new building or a newly constructed building not yet

listed for tax purposes, an estimate is made of the probable

tax.

(4-19) The estimate is accomplished by comparison with known tax

assessments for recently assessed similar properties, adjusted

for visible differences in the properties, and by taking into

account any pending change in the general level of assessed

values or of tax rates.

C. Special Assessments. Special assessments are usually imposed to

provide the taxing jurisdiction with funds to pay for, or to

provide a sinking fund to liquidate bonds issued to pay for

street improvements, sidewalks, sewers or other utilities which

are for the benefit of the property so assessed. Such

improvements will usually have the effect of increasing the

value of the benefited property in a sum at least equal to their

cost. If special assessments exist, or if they are in immediate

prospect, the length of time such assessments continue as well

as the total payment required are considered. Even though

special assessment payments may be required for only a few

years, they must be given consideration. A few years of high

special assessments may seriously affect desirability for home

ownership. A distinction must be made, however, between general

assessments and prepayable assessments which specifically

benefit the properties assessed. The latter are rarely

objectionable, since they usually enhance the properties in

proportion to their amount. In some communities each individual

property is made security for an entire bond issue and the

property cannot be freed from the special assessment lien until

the bond issue has been entirely retired.

Because favorable financing is usually obtained when special

assessments are used, the formation of these Districts should

not be discouraged. HUD does not require that where assessments

are prepayable, they must always be prepaid. Based on the bond

financing, current interest rates, etc., it may be to the

purchaser\'s advantage not to prepay. This is a decision which

should be left to the purchaser.

Since market data may not uniformly reflect the effect of these

assessments, it may be necessary to adjust the comparables to

compensate for the differences. The estimate of value is to be

predicated on fee simple title unencumbered by the assessment.

Accordingly, where necessary, an adjustment to reflect the

amount of the special assessment remaining unpaid will have to

be made. For example:

Indicated Value Without Special Assessment \$50,000

Unpaid Amount of Special Assessment 5,000

\_\_\_\_\_\_\_

Estimated Market Value \$45,000

Where this type of adjustment is made, an appropriate notation

should be made on the URAR.

(4-19) D. Non-prepayable Assessment and Benefit Bonds. It has become

customary in some taxing jurisdictions to finance by the

issuance of bonds, installations of street improvements,

utilities, public water, or sewage disposal systems. These

bonds differ from the usual special assessment bonds and more

nearly resemble general obligation bonds. Obligations of this

type are variously known as Front Foot Benefit Bonds, Revenue

Bonds, or similar titles. Payments by property owners of

principal and interest into sinking funds for retirement of

Front Foot Benefit Bonds are usually spread over a long term of

years and are collected semi-annually or annually with general

taxes. Payments for retirement of Revenue Bonds are customarily

chargeable to users of water and sanitary facilities; they are

usually based upon water consumption, calculated as a percentage

of the water used and collected with water bills. Bonds of

these types usually do not constitute prior liens against

properties in a lump sum amount but only become a lien for the

amounts of any delinquent payments. Such assessments are

usually nonprepayable in fact or because of prohibitive or

costly penalties attached to prepayment privileges. For these

reasons it is considered unnecessary to reflect the total

amounts of such assessments in Estimates of Value for insured

mortgage loan purposes. The annual payments will be treated in

the appraisal process as costs of ownership or operation.

E. Imminent Assessments Not Yet Levied. Occasionally, at the time

of appraisal, public work is imminent or has been authorized but

the amount of the impending special assessment is not definitely

known and there is reasonable certainty that at the time of

closing the loan the assessment will not have been spread upon

the tax roll. If, in such instances, it is deemed advisable to

predicate the appraisal upon the assumption of completion of the

proposed work, the amount of its costs will be estimated and

reflected in the Estimate of Value in accordance with the

instructions of Paragraph 4-19c above. The amount of the

estimated assessment will be noted in the appropriate space so

it can be dealt with upon the assumption that the assessment

will not be paid off from the proceeds of the settlement, but

will continue as a lien.

#  SECTION 2 - SPECIAL NEIGHBORHOOD HAZARDS AND NUISANCES

[]{#__RefHeading___Toc169057529 .anchor}**4-20. UNACCEPTABLE
LOCATIONS**. \<[Top](#_top)\> The rejection of a location is warranted

only in instances where the property being appraised is subject to

hazards, noxious odors, offensive sights or excessive noises to the

point of endangering the physical improvements or seriously

affecting the livability of the property, its marketability or the

health and safety of its occupants. Rejection may also be

appropriate if the future economic life of the property is so

shortened by obvious and compelling pressure to a higher use as to

make a fairly long term mortgage loan impractical. These

considerations are applicable on an individual case basis, however,

taking into account the needs and desires of the user group to which

the property will appeal. There is no policy which categorically

causes rejection of any property because of proximity to adverse

influences. For example, properties should not be rejected simply

because they abut commercial use. Some commercial uses may be

entirely inoffensive to a specific market segment while other

commercial uses may be intolerable. The decision to accept or

reject a property affected by any of the above-cited conditions, or

any other conditions must be made on a case-by-case basis by the

appraiser who inspects the property and its environment to determine

if the property meets the eligibility criteria, the objectives of

the MPS and the location criteria.

[]{#__RefHeading___Toc169057530 .anchor}**4-21. PHYSICAL
ATTRACTIVENESS**. \<[Top](#_top)\> The features listed below are
analyzed to

determine the physical conditions of the neighborhood that affect

the physical improvements and the health and safety of the occupants

or influence their pleasure in the appearance of the environment.

The elements considered in this analysis are:

A. Hazards and Nuisances. Physical conditions may be found in some

neighborhoods that are a hazard to the personal health and

safety of the occupants or may endanger the physical

improvements. Such conditions include unusual topography,

subsidence, flood, unstable soils, traffic hazards, and various

kinds of grossly offensive nuisances.

1\) Topography. Special hazards are sometimes found to result

from the peculiar topography of a neighborhood.

Marketability is often adversely affected in hillside areas

by the hazards caused by denuded slopes, soil erosion, and

land slippages. Earth and mud slides from an adjoining

property, falling rocks, etc., are some of the hazards

associated with steep grades and must be considered in the

evaluation of the location.

2\) Subsidence. Danger of subsidence is a special hazard that

may be encountered under a variety of circumstances. The

(4-21) danger may exist when buildings are constructed on

uncontrolled fill or unsuitable soil containing foreign

matter such as organic material. It may be present in

certain areas where the subsoil is unstable and subject to

slippage or expansion. In mining areas consideration must

be given to the depth or extent of mining operations, and

the location of operating or abandoned shafts or tunnels in

order to reach a conclusion as to whether the danger is

imminent, probable, or negligible. In locations where the

danger of subsidence exists, a specific site will be deemed

ineligible unless complete and satisfactory evidence can be

secured that will establish the probability that any threat

of subsidence is negligible.

[]{#__RefHeading___Toc169057531 .anchor}**4-22. OPERATING AND ABANDONED
OIL OR GAS WELLS**. \<[Top](#_top)\> Both operating and

abandoned oil and gas wells pose several potential hazards to

housing. Hazards include potential fire, spray or other pollution,

and explosion. Accordingly, no dwelling may be located closer than

300 feet from an active or planned drilling site; this applies to

the site boundary, not to the actual well location.

A. Operating Wells. When operating wells are located in single

family subdivisions, it is required that no housing be built

within 75 feet of an actual operating well unless mitigation

measures are taken. This is to avoid nuisance during

maintenance, to diminish noise levels caused by pumping and to

reduce the likelihood of contamination by potential petroleum

spills. Field Offices should require that operating wells be

fenced and permanently screened by appropriate tall and dense

landscaping.

B. Abandoned Wells. Most petroleum producing States have specific

required well abandonment practices, but some wells have been

abandoned in the past without necessary precautionary actions.

Since it is infeasible for HUD personnel to verify the adequacy

or safety of an abandoned well, a letter from the responsible

authority within the State government should state that the

specific well in question was safely and permanently abandoned.

Where such a letter is provided housing may be located no closer

than ten feet from an abandoned well.

Hazards from improperly abandoned wells include blowout and

potential fire. Where a State does not issue a letter as

described, housing must be located at least 300 feet from an

abandoned well.

C. Special Case \-- Proposed, Existing or Abandoned Wells. In some

geographic areas (Wyoming is one) hydrogen sulfide gas may be

emitted from petroleum product wells. It is considered a major

(4-22) hazard since it is highly toxic and a threat to life and health.

It is heavier than air and tends to flow downslope, through

valleys and canyons and can cause deaths before people become

aware of the problem and can escape. Minimum clearances from

sour gas wells may be established only after a petroleum

engineer\'s assessment of risk and clearance recommendations are

obtained and concurred with by State authorities responsible for

petroleum industry regulation and for public health and safety.

D. Slush Pits. A slush pit is a basin, in which drilling \"mud\" is

mixed and circulated. The mud is circulated during drilling to

lubricate and cool the dill bit and to flush away rock cuttings.

Drilling mud normally contains large quantities of bentonite,

which is a very expansive soil material, and results in a site

with great soil volume change potential, which may be very

damaging to buildings. Whenever a building is proposed near an

active or abandoned well, the old slush pit location should be

determined. After it is located, either all unstable and toxic

materials should be removed from it and the pit filled with

compacted selected materials or no dwelling construction may be

accepted on a lot that includes any part of a slush pit.

[]{#__RefHeading___Toc169057532 .anchor}**4-23. FLOOD HAZARD AREAS**.
\<[Top](#_top)\>

General. When a property, including any portion of the site, is

located in an area designated as a special flood hazard area, or is

otherwise determined to be subject to a flood hazard, it shall be

required by special condition on the conditional or firm commitment

or DE approval that the mortgagor and mortgagee must obtain and

maintain, where available, NFIP (National Flood Insurance Program)

flood insurance coverage on the property during such time as the

mortgage is insured. Such insurance is required by law under the

Flood Disaster Protection Act of 1973 with respect to mortgages on

properties insured by HUD. However, if the Office Manager

determines that the improvement on a property is located at such a

high elevation that there is no risk of flooding, even though a

portion of the property is located within a special flood hazard

area, be may exempt the property from the flood insurance

requirement. This determination shall only be made in those cases

where the building site grade is substantially above the 100-year

frequency water surface elevation and where it is obvious, because

of the location of the property in relation to other properties in

the designated flood hazard area, that there is no risk of flooding

involved. The Manager shall place the burden on the mortgagee and

mortgagor of establishing the facts necessary to make this

determination.

(4-23) Properties should be rejected if they are subject to frequently

recurring flooding, or if there is any potential hazard to life or

safety, or if escape to high ground would be infeasible during

severe flood.

A. Extent of Flood Insurance Coverage Required. The flood

insurance to be maintained shall be in an amount at least equal

to either the outstanding balance of the mortgage less estimated

land value or the maximum amount of NFIP insurance available

with respect to the property, whichever is less.

B. Designation of Special Flood Hazard Areas. The Federal

Emergency Management Agency (FEMA) is responsible for

determining special flood hazard areas on a nationwide basis.

The designation of these areas within a community is

accomplished by the issuance by FEMA of a Flood Hazard Boundary

Map. An area of special flood hazard may be designated as Zones

A, AO, AH, A1-30, AE, A99, VO, or V1-30, VE or V. Only those

properties within zones \"A\" and \"V\" require flood insurance.

Zones \"B\" or \"C\" do not require flood insurance because FEMA

designates only \"A\" and \"V\" zones as \"Special Flood Hazard

Areas.\"

C. Availability of Flood Insurance. Flood Insurance is available

for all eligible buildings located within participating

communities.

D. HUD instructions for property appraisals require identification

of whether a property is in a FEMA-mapped flood hazard area. An

Appraisal Report with positive indication of a property location

in a flood hazard area will trigger a commitment requirement for

flood insurance coverage. Under the Direct Endorsement Program,

the mortgagee must impose the flood insurance requirement.

Mortgagees are responsible for checking negative indications of

flood hazard areas.

Appraisers must be careful to identify special flood hazard

area, and make a requirement for flood insurance where

applicable because:

1\) The mortgagee may be surcharged on its mortgage insurance

claim if the default is due to flood damage or destruction

and there is no flood insurance to cover the cost of repair

or replacement.

2\) The mortgagee may lose its FHA approval.

3\) The mortgagee may be subject to an action by a mortgagor

against the mortgagee for negligence.

(4-23) 4) The property and the mortgagor may become ineligible for

Federally-administered disaster assistance loans or grants.

5\) The fee appraiser may be removed from the fee panel because

of his negligence.

E. Distribution of FEMA Maps. Field Office Managers must contact

the Federal Emergency Management Agency, Flood Map Distribution

Center 6930 (A-F) San Tomas Road, Baltimore, MD., 21227-6227 for

copies of Flood Hazard Boundary Maps and Flood Insurance Rate

Maps. Community eligibility information can also be obtained

from this same source. Maps may also be ordered by calling

1-800-333-1363.

F. Special Flood Hazard Requirements.

1\) Proposed construction, located or to be located within a

Special Flood Hazard area, is unacceptable regardless of

whether or not the property is, or will be, covered by

Flood Insurance because HUD does not wish to encourage

development in such areas unless mitigation measures are

adopted. In such cases, Field Offices should implement

procedures contained in Executive Order 11988.

2\) The eligibility of existing properties located in an area

designated as a special flood hazard area by FEMA will be

determined by market attitude and acceptance. Flood

insurance will be required of those properties accepted for

mortgage insurance within the designated flood hazard areas

as determined by FEMA.

3\) In a condominium, the Homeowners Association is responsible

for maintaining flood insurance on the project as a whole

rather than each individual unit owner being responsible

for their own unit.

4\) Obtaining NFIP Flood Insurance. Persons seeking advice as

to the availability of NFIP flood insurance should be

directed to any State-licensed property insurance broker or

agent in the community, or to the NFIP servicing company at

\(800\) 638-6620 or to any participating \"write your own\"

company (W.Y.O.).

[]{#__RefHeading___Toc169057533 .anchor}**4-24. OVERHEAD HIGH VOLTAGE
TRANSMISSION LINES**. \<[Top](#_top)\> No dwelling may be

located within ten feet of the outer boundary of a High Voltage

transmission line easement nor may the site be any closer than the

fall distance of a structural tower supporting the lines.

[]{#__RefHeading___Toc169057534 .anchor}**4-25. HEAVY TRAFFIC**.
\<[Top](#_top)\> Location on streets having heavy or fast traffic

lessens desirability because of noise and danger and often affect\'s

the value. Sites backing to freeways or other thoroughfares which

are heavily screened or where traffic is well below grade and

sufficient distance from the property may not be adversely affected.

If the appraiser feels that there is sufficient noise to affect the

marketability of the property, it should be rejected and a clear

explanation provided. Distance alone is not sufficient to reject

the property.

[]{#__RefHeading___Toc169057535 .anchor}**4-26. AIRPORT NOISE &
HAZARDS**. \<[Top](#_top)\> Locations near an airport may be subjected

to the noise and hazard of low-flying aircraft. Therefore,

consideration must be given to the desirability of an affected

location in comparison with unaffected locations that are improved

with or are appropriate for competitive structures.

A. Proposed Residential Properties - Noise Zones.

1\) If proposed housing locations lie in an area in which the

noise factor exceeds 75 decibels, the site should be

rejected and no new residential development should be

considered in this zone.

2\) If proposed housing locations lie in an area in which the

noise factor exceeds 65 decibels but not 75 decibels, while

normally not acceptable, may be mitigated by appropriate

sound attenuation measures such as soundproofing, year

around air conditioning, or other treatment.

3\) Where the proposed location lies within an area in which

noise levels are 65 decibels or less, noise should not be a

factor in considering residential development.

B. Existing Properties. Existing properties are not to be rejected

solely because of airport influences if there is evidence of

acceptance in the market. HUD\'s position is that since the

dwellings are in use and are expected to continue so in the

foreseeable future, their marketability should be the strongest

indicator of their acceptability.

1\) Market Survey. When it appears that significant and

substantial changes are occurring, or are likely to occur,

in the marketability of properties near an airport, a

comprehensive in-depth market survey will be initiated by

the Chief Appraiser for the information and guidance of the

Director of Housing/Housing Development. This market

survey will be directed to such facts and opinions as:

(4-26) a. Selling prices and rentals of homes, as compared with

similar homes in other areas not subject to this

influence.

b\. Length of time properties sold were on the market, as

compared with the exposure of similar properties sold

in unaffected areas.

c\. Length of time rental properties were unoccupied, as

compared with those in unaffected areas.

d\. Number of properties for sale or for rent, as compared

with other unaffected areas.

e\. Increase or decrease in sales since previous survey.

2\) This survey should tap any informed sources of information,

and should be recorded block by block. It should include

opinions of former owners who have moved from the affected

area, or their attorneys, brokers, etc., if the owners are

not available. The reports of the HUD Area Economist will

be useful in determining the potential market demand

created by the airport and related industries.

3\) In the event that these market reports indicate adverse

changes in market attitudes, one copy of the report of the

survey and any supporting data must be forwarded upon

completion to Headquarters, Office of Insured Single Family

Housing, Valuation and Technical Support Branch, for

review, and one copy to the Assistant Regional

Administrator.

4\) Continuing Marketability. The value of individual

properties and their continuing marketability will depend

to a great degree upon the type of planes, the frequency

and timing of flights, the intensity of noise, and other

factors. There will be varying reactions with distance

from the airport, and these variances will be recognized in

value in accordance with demonstrated market reaction and

evidence of trend. Also, there will be wide variances in

the attitudes of different communities or localities, since

some will be much less sensitive to particular types of

disturbance than will others. This is not peculiar since

similar attitudes are found with respect to certain

industrial plants, types of highway installation, etc.

5\) Location Analysis. After giving consideration to the

determinations previously mentioned involving existing

construction, the basic principles of location analysis

will

(4-26) be applied in accordance with outstanding instructions.

Consideration should be given to the following:

a\. Plans for future expansion of airport facilities and

services.

b\. Prospective or probable increases in the number of jet

or other flights using the field or specific runways.

c\. The timing of the volume of the flights, (day, night,

etc.).

d\. Other factors that may increase the annoyance in given

locations in the future.

6\) If such changes are in reasonable prospect, as in the case

of plans to lengthen or relocate runways, to enlarge the

airport and build new runways, to increase the number of

flights or the weight of planes used, etc., the appraisal

must anticipate any adverse effect that is likely to

result.

Each case will be judged on its own merits. The effect of

aircraft activity on the desirability of a particular

location shall be compared with other locations that are

improved with or appropriate for structures which are

competitive with those that are typical of the neighborhood

of the subject site.

C. Airport Hazards.

1\) HUD will not accept proposed construction cases and

existing dwellings less than one year old if the property

is located within Runway Clear Zones at Civil Airports or

Clear Zones or Accident Potential Zone I at Military

Airfields.

2\) Existing dwellings more than one year old are acceptable

provided the prospective purchaser acknowledges awareness

that the property is located in a Runway Clear Zone/Clear

Zone. This acknowledgment \"Notice to Prospective Buyers of

Properties Located in Runway Clear, Zones and Military

Airport Clear Zones\" must be used in every instance where

applicable and should be used without change. A signed

acknowledgment must accompany the application for firm

commitment. See suggested format on pages 4-24a and 4-24b.

(4-26) 3) Applications are not acceptable for existing dwellings if

major modernization or rehabilitation is involved. Any

project which significantly prolongs the physical life of

existing units or increases the density or number of people

at the site will render the property unacceptable.

4\) Approved Appraisers, Direct Endorsement mortgagees and

approved HUD lenders must all be made aware of these

requirements and be provided copies of appropriate maps.

Appraisers are responsible for identifying properties

affected and must condition acceptance on notification

being provided to the prospective purchaser. Mortgagees

are responsible for inserting the property address and the

name of the airport on the Notice. Mortgagees must also

ensure that the prospective purchaser receives the

notification at the time loan application is initiated.

Copies of the completed notification with the case number

included should be distributed as follows:

a\. HUD;

b\. Mortgagees\' records;

c\. Purchaser; and

d\. Real Estate Agent (if appropriate).

For cases being processed by HUD, the Notice must accompany

the application for Firm Commitment.

[]{#__RefHeading___Toc169057536 .anchor}**4-27. FIRE AND EXPLOSION**.
\<[Top](#_top)\> The storage or manufacture of volatile or

explosive products, and other conditions that constitute

extraordinary exposure to the danger of explosion or conflagration

from nearby industry, gas lines, or contiguous brush or grass land,

are hazards that adversely affect value of the dwellings in the

neighborhood.

A. Locations Near High Pressure Gas and Liquid Petroleum

Transportation Pipelines. No part of any residential structure

shall be located less than ten feet from the outer boundary of

the pipeline easement of high pressure gas and liquid petroleum

transmission lines. When new construction or subdivision land

planning is proposed in areas outside the ten foot limit, but

within an area that extends 220 yards on either side of the

centerline of such high pressure transmission line, the

developer shall be required to comply with the following

procedure prior to HUD acceptance of applications for commitment

on individual properties.

(4-27) B. The developer must provide HUD with a statement from an

authorized official of a gas pipeline company certifying

compliance with each of the following paragraphs of Title 49,

Transportation, of the Code of Federal Regulations.

1\) 192.607 - Initial determination of class location and

confirmation or establishment of maximum allowable

operating pressure.

2\) 192.609 - Required study for change in class location.

3\) 192.611 - Change in class location; confirmation or

revision of maximum allowable operating pressure.

4\) 192.613 - Continuing surveillance practices (identification

and operating methods used by survey team.)

C. For liquid petroleum, certifying that the pipeline complies with

CFR-195 and all amendments thereto.

D. Pipeline companies maintain records of the above, per agreement

with the Department of Transportation as recorded in Federal

Register, Volume 35, Number 161, dated August 19, 1970, which

has been previously distributed to all Field Offices.

E. The above statements obtained by the developer shall be retained

in the subdivision file.

[]{#__RefHeading___Toc169057537 .anchor}**4-28. SMOKE, FUMES, OFFENSIVE
NOISE AND ODORS, AND FAILING SEWAGE SYSTEMS**. \<[Top](#_top)\>

Smoke, fog, chemical fumes, noxious odors, stagnant ponds or

marshes, poor surface drainage and excessive dampness may exist to a

degree that is hazardous to the health of neighborhood occupants.

Offensive noises and unsightly neighborhood features such as

stables, kennels, and malfunctioning sewage disposal systems

adversely affect the appeal of the neighborhood.

Sewage System Failure. Where individual sewage disposal systems

are involved, an analysis of the location must be made to assure

that the area is free from conditions which adversely affect the

operation of the systems. Consideration will be given to the

type of systems, topography, depth to ground water, soil

permeability and the type of soil to a depth of several feet

below the surface. A check of other, septic systems in the

neighborhood must be made to assure that failures within the

neighborhood will not adversely affect the subject property.

Whenever there are instances of doubt concerning the operation

of sewage disposal systems in a neighborhood, the services of

the local health authority should be obtained.

(4-23) \*NOTE: More detailed information and instructions concerning
many

of the foregoing special hazards and nuisances may be found

in HUD Handbooks 1390.2, 1390.4, 4135.1, 24 CFR Part 51 and

24 CFR Part 200.926.

[]{#__RefHeading___Toc169057538 .anchor}**4-29. TERMITES**.
\<[Top](#_top)\> Termites can cause serious problems in the wood

structural components of a home and in many cases go undetected for

a long period of time. Because the structural integrity of a

building can be seriously affected, and the marketability of an

infested home questionable, the Department requires assurance, to

the extent possible, that a home is free of any infestation.

A. PROPOSED CONSTRUCTION:

To protect against decay and termite infestation, builders must

follow the requirements in HUD-approved local, state or CABO

building codes. The builder must specify the type of treatment

to be used. See USDA Forest Service Home and Garden Bulletin

64, Subterranean Termites-Their Prevention and Control in

Buildings. If soil treatment is used, submit Form HUD 92052,

Termite Soil Treatment Guarantee as required by the Conditional

Commitment/Direct Endorsement Statement of Appraised Value, Form

HUD 92800.5B.

B. EXISTING CONSTRUCTION:

In those parts of the country susceptible to termite

infestation, appraisers must look in areas of the property which

have a potential for termite infestation such as the bottoms of

outside doors and frames, wood siding in contact with the ground

and crawl spaces. They should also look for mud tunnels running

from the ground up the side of the house. If there is any

evidence or potential for termite infestation, the appraiser

must make a requirement for an inspection by a reputable,

licensed termite company.

NOTICE TO PROSPECTIVE BUYERS OF PROPERTIES LOCATED IN

RUNWAY CLEAR ZONES AND MILITARY AIRPORT CLEAR ZONES

(In accordance with 24 CFR 51.303(a)(3), notice must be given to anyone

interested either in buying an existing HUD property, or using HUD

assistance to buy an existing property, which is located in either a
Runway

Clear Zone at a civil airport or Clear Zone at a military installation.)

The property which you are interested in purchasing at
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

is located in the Runway Clear Zone/Clear Zone for
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

Studies have shown that if an accident were to occur it is more likely
to

occur within the Runway Clear Zone/Clear Zone then in other areas around

the airport/airfield. Please note that we are not discussing the chances

that an accident will occur, only where one is most likely to occur.

You should also be aware that the airport/airfield operator may wish to

purchase the property at some point in the future as part of a clear
zone

acquisition program. Such programs have been underway for many years at

airports and airfields across the country. We cannot predict if or when

this might happen since it is a function of many factors, particularly
the

availability of funds, but it is a possibility.

We wanted to bring this information to your attention. Your signature on

the space below indicates that you are now aware that the property you
are

interested in is located in a Runway Clear Zone/Clear Zone.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Signature of prospective buyer Date

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Type or print name of prospective buyer

(This notice must be maintained as part of the HUD file on this action.)

# CHAPTER 5. PROPERTY ANALYSIS.

[]{#__RefHeading___Toc169057540 .anchor}**5-1. ANALYSIS OF PHYSICAL
IMPROVEMENTS**. \<[Top](#_top)\> Analysis of the physical

improvements results in conclusions as to the desirability, utility

and appropriateness of the physical improvements as factors in the

determination of mortgage risk and the ultimate estimate of value.

[]{#__RefHeading___Toc169057541 .anchor}**5-2. ANALYSIS OF SITE**.
\<[Top](#_top)\> The appraiser must analyze the site to establish

the basis for comparing the estimates of market prices of sites in

the estimate of replacement cost of the property and to determine

suitability for the existing or proposed use.

[]{#__RefHeading___Toc169057542 .anchor}**5-3. HIGHEST AND BEST USE OF
SITE**. \<[Top](#_top)\> For both proposed and existing

construction, the appraiser must determine the present highest and

best use for the site disregarding improvements which may exist or

which are proposed for the site. The conclusion serves as the basis

of comparison for estimating the market price of the land and

discloses the extent to which the existing or proposed building

improvements are appropriate or inappropriate to the site.

[]{#__RefHeading___Toc169057543 .anchor}**5-4. EXCESS LAND**.
\<[Top](#_top)\> The term Excess Land is defined as being that area by

which the plot exceeds the area of a readily marketable real estate

entity.

A. Excess land occurs when the subject lot is considerably larger

than typical lots in the neighborhood, and the excess is capable

of separate use. However in small communities and outlying

areas different criteria must be used since the market may

readily accept a wide variance in lot sizes due to wide

differences in lot use by this segment of the market.

B. When it has been determined that the plot contains excess land,

the area of the readily marketable real estate entity, together

with the existing or proposed improvements, is delineated and is

appraised in the prescribed manner. The excess land is

described but is not appraised. A requirement is made that the

excess land be excluded from the mortgage security.

[]{#__RefHeading___Toc169057544 .anchor}**5-5. TOPOGRAPHY**.
\<[Top](#_top)\> Proper topography and site grading can be an important

element in preventing wet basements, damp crawl spaces, erosion of

soils, and overflowing sewage disposal systems. The appraiser must

analyze the relationship of street grades, floor elevations and lot

grades to ensure proper protection. Where foundations or their

bearing soils may be affected by seepage or frost, the dwelling is

unacceptable unless the surface and subsurface water is diverted

from the structures so as to ensure positive drainage away from the

foundation.

[]{#__RefHeading___Toc169057545 .anchor}**5-6. SUITABILITY OF SOIL**.
\<[Top](#_top)\> The soil and subsoil conditions of the site

must be considered. The type and permeability of the soil, the

location of the water table, surface drainage conditions,

compaction, and the existence of rock formations are among the

physical features that are important in the analysis of the site.

Effects of the adverse features of the adjoining land must also be

observed.

[]{#__RefHeading___Toc169057546 .anchor}**5-7. OFF-SITE IMPROVEMENTS**.
\<[Top](#_top)\> Consideration must be given to the off-site

improvements adjoining the subject property. These improvements

consist of street surface, curbs, sidewalks, curb cuts, driveways,

aprons, etc., which are not contained within the legal boundaries of

the site but enhance the market acceptance and the use and

livability of the property. Other situations requiring

consideration of off-site improvements are:

A. Proposed construction dwellings located in an approved

subdivision must comply with the off-site improvements as

required by HUD Handbook 4135.1 and set forth in the subdivision

file.

B. The subject property must be compared with the immediate

neighborhood to determine the predominate off-site improvements

required by the market. Necessary off-site improvements that

are not in existence or are proposed to be installed for the

subject property must be made a condition of the commitment.

C. Any proposals for the installation of off-site improvements and

the levying of assessments by the local governing body in the

near future will necessitate a commitment condition requiring

the installation of improvements and the payment of the

assessment prior to insurance endorsement.

[]{#__RefHeading___Toc169057547 .anchor}**5-8. EASEMENTS, RESTRICTIONS,
OR ENCROACHMENTS**. \<[Top](#_top)\> Consideration must be

given to any easement, restriction or encroachment and its effect on

the value. These should be listed on the application. However,

such factors are often not discovered until after the appraisal

report is complete.

A. The appraiser must inspect the site for any obvious signs of

easements, restrictions and encroachments not included in the

application. If additional information is needed to fully

disclose the nature of an easement, restriction or encroachment,

the application should be returned to the mortgagee for further

information.

B. Factors considered in the value estimate must be recorded in the

Uniform Residential Appraisal Report.

[]{#__RefHeading___Toc169057548 .anchor}**5-9. PROPOSED CONSTRUCTION**.
\<[Top](#_top)\> Where unusual cuts, fills, retaining walls,

etc., are necessary in preparing the site for the proposed building

improvements, the appraiser must make an estimate of the amount by

which the cost of the work exceeds the cost of preparing typical

sites for similar structures from the Marshall and Swift Cost

Handbook. This estimate is supplemental to the estimate of

replacement cost of building improvements.

A. When estimating the market price of a site where unusual site

characteristics must be corrected, comparisons are made under

the assumption that the site is in the condition which will

exist after completion of the corrective work. The cost of the

treatment is disregarded, but the value of the improved site is

used in the estimate of replacement cost of the property.

B. The appraiser uses the supplemental cost estimate to determine

the extent to which the replacement cost of the property will

exceed the cost of a substitute property produced by

constructing identical building improvements on a typical site.

It is also used as an indication of the extent to which value

may be less than replacement cost for that part of the cost in

excess of the cost of preparing the typical site.

C. The cost of treating unusual site characteristics must not be

included in the Estimate of Replacement Cost of Building

Improvements. This is necessary to avoid including both the

effect of site treatment and the cost of the work in the

Estimate of Replacement Cost of the Property.

[]{#__RefHeading___Toc169057549 .anchor}**5-10. EXISTING DWELLINGS AND
DWELLINGS COMPLETED LESS THAN ONE YEAR PRIOR TO THE APPRAISAL WITHOUT
HUD OR VA APPROVAL AND INSPECTIONS**. \<[Top](#_top)\>

The condition of existing building improvements is examined at the

time of appraisal to determine whether repairs, alterations, or

additions are necessary. If so they should be those items essential

to eliminate conditions threatening the continued physical security

of the property. Required repairs will be limited to those

necessary to preserve the continued marketability of the property

and to protect the health and safety of the occupants.

Although existing dwellings are inspected by the appraiser, the

appraiser may request the assistance of the Architectural Section as

the need arises. The appraiser will then determine whether to

accept the property as is, reject it, or determine the extent of

repairs, necessary to make the property acceptable for HUD mortgage

insurance.

[]{#__RefHeading___Toc169057550 .anchor}**5-11. NONCOMPLIANCE WITH THE
GENERAL ACCEPTABILITY CRITERIA**. \<[Top](#_top)\> When

examination of existing construction reveals noncompliance with the

General Acceptability Criteria (HUD Handbook 4905.1), an appropriate

specific condition to correct the deficiency is required in the

report if correction is feasible. If correction is not feasible,

and compliance can be effected only by major repairs or alterations,

the property shall be rejected and the reasons explained in the

report. In such cases, the appraiser provides an \"as is\" value,

which is an estimate of the market value of the property if major

repairs were not needed, less the estimated cost of needed repairs.

[]{#__RefHeading___Toc169057551 .anchor}**5-12. CONDITIONS REQUIRING
REPAIR**. \<[Top](#_top)\>

A. Typical Conditions requiring repairs or replacements are:

termite damage; damaged, inoperative or inadequate plumbing,

heating or electrical systems; broken or missing fixtures,

rotten or worn out counter tops; any structural failure in

framing members; leaking or worn out roofs; defective paint

surfaces (See \"Lead Based Paint\" below.); masonry and foundation

damage; drainage problems; wood floors worn through the finish;

broken plaster or sheetrock; and requirements to meet the code

but only in certain HUD programs requiring code compliance.

B. Deferred Maintenance. Any element which, while still operable

or useful, will have reached the end of its useful life within a

period estimated not to exceed two years, should also be

replaced. With respect to such deferred maintenance items, good

judgment must be exercised.

C. Replacement Because of Age. No Replacement of an element simply

because of its age and for no other reason, shall be made if the

element is still functioning well. Where there is doubt because

of age, but the element or system appears satisfactory, a

certification as to its condition may be required.

D. Health and Safety. The appraiser shall make such other

requirements as are essential to the health and safety of the

occupants.

[]{#__RefHeading___Toc169057552 .anchor}**5-13. CONDITIONS NOT REQUIRING
REPAIRS**. \<[Top](#_top)\> Conditions which do not

ordinarily require repair include any surface treatment,

beautification or adornment which is not connected to work required

for the preservation of the property, its continued physical

soundness or marketability, or the health and safety of its

occupants. Some examples are:

A. A wood floor whose finish has been worn off to expose the bare

wood must be sanded and refinished; but a wood floor which has

darkened with age but has an acceptable finish does not need

polishing or refinishing.

(5-13) B. Peeling interior paint and broken or seriously cracked plaster

or sheetrock require repair and repainting, but paint which is

adequate though not fresh need not be redone.

C. Missing shrubbery or dead grass on an existing property need not

be replaced.

D. Cleaning or removal of carpets is required only when they are so

badly soiled as to affect the liveability and/or marketability

of the property.

E. Installation of paved driveways or aprons should not be required

if an otherwise acceptable surface is present.

F. Installation of curbs, gutters or partial paving of a street is

not required unless assessment for the same is imminent.

G. Complete replacement of tile floors is not necessary because

some tiles do not match, etc.

NOTE: Unnecessary requirements should be avoided because

they increase the cost of housing without adding any

basic amenities to the property.

[]{#__RefHeading___Toc169057553 .anchor}**5-14. LEAD BASED PAINT**.
\<[Top](#_top)\> For all properties constructed before 1978, the

appraiser must inspect all interior and exterior surfaces, such as

walls, stairs, deck porch, railing, windows or doors for defective

(chipping, flaking or peeling) paint. (Exterior surfaces include

those surfaces on fences, detached garages, storage sheds and other

outbuildings and appurtenant structures.) In condominiums, exterior

surfaces and appurtenant structures of only the unit being appraised

need be inspected.

A. If an area of paint on the property is defective, the commitment

must contain the requirement that the surface to be treated must

be thoroughly washed, sanded (but not machine sanded), scraped,

or wire brushed so as to remove all defective paint before

repainting. The surface must receive, as a minimum, two coats

of a suitable non-lead based paint.

B. The defective paint on applicable surfaces must be removed or

covered with materials such as hardboard, plywood, plaster, or

other suitable materials.

C. Escrows for the treatment of defective paint conditions

affecting the exterior portion of the house as well as

appurtenances, are allowed only during periods of adverse

weather conditions, typical for the area, which preclude the

satisfactory completion of the work or in connection with 203(k)

Rehabilitation. The mortgagor must request the establishment of

(5-14) the escrow and acknowledge the existence of the defective paint

surfaces. Escrows for interior defective paint surfaces other

than the 203k Program are not acceptable.

D. A property involving a Veterans Administration Certificate of

Reasonable Value, in which the dwelling was built between 1950

and 1978, require that the mortgagee provide evidence from a

HUD-approved inspector that either no defective paint conditions

exist or that defective paint conditions were found and

correction is required. The fee for this service cannot exceed

the normal inspection fee. The mortgagee is responsible for

making payment to the fee inspector. The charge for this

service. will be assessed to the seller of the property. If an

exterior escrow is approved, a fee for the inspection follow-up

must be included in the escrow amount.

E. The lead-based paint requirements do apply to refinance

transactions that require an appraisal, but do not apply to

refinance transactions that do not require an appraisal.

F. Persons buying homes built before 1978 must receive the consumer

information pamphlet on lead-based paint poisoning. (See pages

5-12a and b)

[]{#__RefHeading___Toc169057554 .anchor}**5-15. ADEQUACY OF FUNCTIONAL
COMPONENTS**. \<[Top](#_top)\> The appraiser must consider not

only the condition of the property and its equipment but also the

functional adequacy of those components under conditions typically

expected. Inferior quality roofing, plumbing, and heating

equipment, undersized hot water heaters, and bottom of the line

appliances are items which must be of concern to the appraiser in

estimating value.

[]{#__RefHeading___Toc169057555 .anchor}**5-16. STANDARDIZED PRE-PRINTED
SPECIAL CONDITION (v.c) SHEET**. \<[Top](#_top)\> The Chief

Appraiser in each Field Office, in conjunction with the Chief

Architect, will establish a list of typical requirements for

proposed and existing properties. The list will contain all

valuation conditions which are typically used within the Field

Office jurisdiction. The valuation condition (v.c) sheet shall be

clearly and simply written so that the mortgagor, mortgages, seller

and tradesmen will easily understand and identify the work to be

completed. The sheet will also provide space for use by the

appraiser when adding conditions not pre-printed on the condition

sheet such as a requirement for a structural engineer\'s report or

reinspection of the roof when it is no longer covered with snow.

The condition sheet will be revised periodically as changes in

conditions are needed.

[]{#__RefHeading___Toc169057556 .anchor}**5-17. REPAIR INSPECTIONS AND
HOME INSPECTIONS**. \<[Top](#_top)\>

A. An Inspection by the appraiser is normally required to determine

whether required repairs to an existing property have been

satisfactorily completed. Only in those instances where minor

repairs involving no technical or structural skills or knowledge

are required can the Field Office or Direct Endorsement

Mortgages Underwriter waive the inspection by the appraiser and

accept a mortgagee\'s certification of completion of such

repairs. When the inspection is performed by the mortgagee,

they may collect the same fee allowed to an appraiser for this

service.

The repair inspection is only for the purpose of assuring that

necessary repairs as set forth in Conditional Commitment or

Statement of Appraised Value have been met. No further

requirements may be added.

B. Homebuyers of existing properties or properties completed less

than one year that were not approved by HUD or the VA prior to

the start of construction and that do not involve a 10 year

warranty may arrange for an inspection by a private,

professional Home Inspection company and include the cost of

such inspection in their closing costs up to \$200.00.

[]{#__RefHeading___Toc169057557 .anchor}**5-18. CODE ENFORCEMENT FOR
EXISTING PROPERTIES**. \<[Top](#_top)\>

A. Local housing code standards are designed by local

municipalities. Accordingly, enforcement of such housing

standards rests with the local authority. HUD has neither the

authority nor responsibility for making such inspections or

enforcing laws of the municipality.

B. The only HUD program in which code enforcement is required by

statute is Section 221(d)(2) of the National Housing Act which

states \" . . . and meeting the requirements of all State laws,

or local ordinances or regulations relating to the health or

safety, zoning, or otherwise, which may be applicable thereto

. . . .\" Accordingly, at the time of closing, all mortgages on

existing construction dwellings insured under Section 221(d)(2),

must be supported by evidence in the form of a letter from the

local code enforcement agency that the dwelling conforms to the

standards of local housing codes, regardless of whether such

codes are regularly enforced at the time of sale or whether the

community has a program of active code enforcement.

There are two exceptions to this requirement:

(5-18) 1) If a local community has no codes containing standards which

can be applied to existing dwellings, a copy of a letter

from an authorized official of the local community or an

appropriate local authority stating that no codes exist,

must be placed in the file.

2\) The homebuyer may employ a home inspection company to

perform a home inspection, to include code conformance, and

provide a certificate, signed by a local official that the

property meets local codes. The cost of such inspection may

be included in the buyer\'s closing costs up to a maximum of

two hundred dollars.

C. The cost of making code repairs will not necessarily increase

the value of the property by the same amount but must be

measured by market reactions. HUD repair requirements may be

the same or may differ from those required by the code

inspection depending on the particular case.

[]{#__RefHeading___Toc169057558 .anchor}**5-19. CERTIFICATION OF
MECHANICAL EQUIPMENT**. \<[Top](#_top)\> The appraiser should require

a certification only when unable to determine the condition of

certain components of the home. A reinspection to examine systems

not in operation at the time of the appraisal should be required

except where the system is new, or nearly new, and raises no

questions as to its adequacy and condition.

A. Any plumbing, heating, air conditioning, roofing or electrical

certifications required by the appraiser will be ordered by the

mortgagee. Certifications will be accepted only from reputable,

independent, licensed (where licensing exists) contractors or

qualified home inspectors.

B. Contractors selected for any specific certification shall not

have any identity of interest with any firm or person connected

with the specific transaction nor may they perform any

recommended repairs. It shall be the responsibility of the

Field Office to notify mortgagees of undesirable firms if a

review of their performance indicates inadequate, inaccurate or

otherwise poor certification reports. The cost of any repairs

found to be necessary may be borne by the seller, buyer or any

other party.

[]{#__RefHeading___Toc169057559 .anchor}**5-20. DESIGN**.
\<[Top](#_top)\> Design is the cohesive element that blends the
structural,

functional and decorative elements of a property into a whole. With

good design the property\'s parts will be in harmony\--(each part with

all the other parts). The whole property, in turn, will be in

harmony with its immediate site and environment. Because good

design is recognized and desired, the economic life of properties

and neighborhoods will be extended and prices obtainable will

typically

(5-20) exceed those that can be obtained for properties offering the
same

number of rooms and area but lacking in elements of good design.

This competitive advantage, usually continues through the entire

economic life of the property. It is this demonstrable price

differential that must be recognized by the appraiser and reflected

in his/her comparative adjustments of market data and final finding

of value.

[]{#__RefHeading___Toc169057560 .anchor}**5-21. CONFORMITY OF PROPERTY
TO NEIGHBORHOOD**. \<[Top](#_top)\> A residential property of

good physical characteristics may not necessarily be good security

for a mortgage loan, even though situated in a good location. It

may be that the property would be entirely appropriate at another

location, but not in its actual location. The property may be

displeasing when viewed in relation to its surroundings, and it may

not conform in other respects to the use which would be most

marketable in the particular neighborhood. Elements other than

similarity of physical characteristics must be considered in

determining the effect of property-neighborhood relationships to

marketability.

[]{#__RefHeading___Toc169057561 .anchor}**5-22. ANALYSIS OF THE ELEMENTS
OF CONFORMITY**. \<[Top](#_top)\> Analysis of Conformity

requires consideration of Suitability of Use-Type, Appropriateness

of Functional Characteristics, Harmony of Design, and Relation of

Expense of Ownership to Family Income Levels.

A. Suitability of Use-Type. The term Use-Type refers to the use

for which a dwelling is designed - single-family, two-family,

and so forth. In most neighborhoods only one use-type is

suitable. In some neighborhoods, however, because of their

heterogeneous development several use-types may be found

suitable.

1\) The marketability of a dwelling designed for single family

use is usually restricted if it is located in a neighborhood

of multiple-family buildings. When the highest and best use

is for multiple-family structures, land cost may be too

great for single-family dwellings and economic life is

shortened.

2\) In apartment house areas amenities customarily desired by

purchasers of single-family homes are reduced and restricted

and densities are greater than those considered acceptable

by

(5-22) the single family home market. Additionally, neighborhood

associations that protect occupants of single family

neighborhoods are not usually found.

B. Appropriateness of Functional Characteristics. Functional

Characteristics refer to the living facilities provided in a

residential property. They relate to site use and to

arrangement, number, and size of rooms. Usually well-defined

neighborhood market preferences are observable.

1\) Nonconformity may be present because of the placement of the

house upon the site. Deviation from the accustomed or

accepted placement should be carefully considered to

determine whether it adversely affects desirability. Side,

front and rear yards should conform to conditions found to

be appropriate to the neighborhood if desirability is to be

maintained.

2\) If a site is substantially smaller than the size typical in

the neighborhood marketability may be restricted. Similar

effects on marketability may result where the shape or

topography of a particular lot makes it less desirable than

those typical of the area.

3\) The number, arrangement and size of rooms frequently conform

to definite preferences in given neighborhoods. In some

localities where one-story dwellings predominate, a

two-story dwelling may meet with considerable market

resistance. Similarly, a dwelling with small rooms might be

restricted in marketability in neighborhoods where dwellings

with large rooms are preferred.

C. Harmony of Design. Conformity of the exterior design of a

structure with those of other structures in the immediate

neighborhood is not important except where it contrasts

inharmoniously with them. There may be considerable variety in

the exterior design of dwellings in a neighborhood and yet each

may present a pleasing appearance when viewed in relation to its

surroundings. On the other hand, a dwelling may be without any

architectural faults and yet clash so violently with the design

of neighboring properties that marketability may be seriously

restricted. For example, if a two-story Colonial residence were

(5-22) erected in neighborhood characterized by one-story Spanish

bungalows, it would probably be unattractive to prospective

occupants irrespective of the excellence of its individual

design.

D. Relation of Expense of Ownership to Family Incomes. Families

usually select homes in neighborhoods where typical occupants

have financial means similar to their own. Because of this

tendency the expense of owning or renting a home must be in

proper relation to the incomes of prospective purchasers or

renters to whom the location appeals as a place of residence. A

home that is too costly for these families to purchase or

maintain will have limited marketability.

[]{#__RefHeading___Toc169057562 .anchor}**5-23. REMAINING ECONOMIC LIFE
OF BUILDING IMPROVEMENTS**. \<[Top](#_top)\> Because buildings

are subject to physical deterioration and obsolescence, their

periods of usefulness are limited. As they deteriorate or become

obsolete, their ability to serve useful purposes decreases and

eventually disappears. This decline and ultimate disappearance of

utility may occur gradually or rapidly.

A. Economic Life vs. Physical Life. The period between the time of

completion of the building and the time when it is no longer fit

or safe for use, or when it is no longer practicable to maintain

it in safe usable condition, is its total physical life. The

total economic life of a structure is the period of time between

the completion of the building and the disappearance of its

ability to produce services or net returns over and above a

return on the land value.

1\) Economic life can never be greater than physical life, but

may be and frequently is less.

2\) A structure may be sound and in good physical condition with

a number of years of physical life remaining and yet have

reached the end of its economic life, if its remaining years

of physical usefulness will not be profitable.

B. Estimation of Remaining Economic Life. In predicting the

remaining economic life of a building, six factors are

considered:

1\) Economic background of the community or region and the need

for accommodations of the type represented;

2\) Relationship between the property and the immediate

environment;

(5-23) 3) Architectural design, style, and utility from the functional

point of view and the likelihood of obsolescence

attributable to new inventions, new materials, and changes

in tastes;

4\) Trend and rate of changes of characteristics of the

neighborhood and their effect upon land values;

5\) Workmanship and durability of construction, and the rapidity

with which natural forces cause physical deterioration; and

6\) Physical condition and probable cost of maintenance and

repair, the policy of owners and occupants with respect to

maintenance, and the use or abuse to which structures are

subjected.

C. End of Useful Life of Building Improvements. The useful life of

a building has come to an end when the building is incapable of

producing an annual income or services sufficient to offset the

expense of maintenance, insurance and taxes to produce returns

upon the value of the land and rehabilitation would not be

feasible. The improvements upon the lot at the time possess no

more value than the amount which can be obtained from a

purchaser who will buy them and remove them from the site.

U.S. Department of Housing and Urban Development

NOTICE: WATCH OUT FOR LEAD PAINT POISONING

TO: PURCHASERS AND TENANTS OF HOUSING CONSTRUCTED BEFORE 1978.

This building was constructed before 1978. There is a possibility that
it

may contain lead-based paint.

PLEASE READ THE FOLLOWING INFORMATION CONCERNING LEAD PAINT POISONING

The interior of older homes and apartments often have layers of
lead-based

paint on the walls, ceilings, window sills and door frames. Lead-based

paint and primers may also have been used on outside porches, railings,

garages, fire escapes, and lamp posts. When the paint chips, flakes or

peels off, there may be a real danger for babies and young children.

Children may eat paint chips or chew on painted railings, window sills
or

other items when parents are not around. Has your child been especially

cranky or irritable? Is he or she eating normally? Does your child have

stomachaches and vomiting? Does he or she complain about headaches? Is

your child unwilling to play? These may be signs of lead poisoning,

although, many times there are no symptoms at all.

If you have seen your child put pieces of paint into his or her mouth or

someone told you this, you should take your child to the Doctor or
clinic

for testing.

Inform other family members and baby-sitters of the dangers of

lead-poisoning.

Look at your walls, ceilings, door-frames, window sills. Are there
places

where the paint is peeling, flaking or chipping? If so, there are some

things you can do immediately to protect your child:

\(1\) Get a broom or stiff brush and remove all loose pieces of paint

from walls, woodwork and ceilings;

\(2\) Sweep up all the pieces of paint and plaster and put them in a

paper bag or wrap them in newspaper. Put these packages in the

trash can. Do not burn them.

\(3\) Do not leave paint chips on the floor. Keeping the floor clear

of paint chips, dust and dirt is easy and very important.

\(4\) Do not allow loose paint to remain within your children\'s

reach, since children may pick loose paint off the lower part

of the walls.

As a Homeowner:

You should keep your home in good shape. Water leaks from faulty
plumbing,

defective roofs or exterior holes and breaks may admit rain or dampness

into the interior of your home, damaging walls or ceilings, causing
paint

to peel, crack or flake. These conditions should be corrected
immediately.

Before repainting, all surfaces that are peeling, chipping or loose
should

be thoroughly cleaned by washing, sanding, or brushing the loose paint
from

the surface; then repaint with two (2) coats of non-leaded paint; or
cover

the surface with other material such as wallpaper or paneling. Simply

painting over deteriorated paint surfaces does not remove the hazard.

As a Renter:

You should notify the Management Office or the Landlord immediately if
the

unit in which you live has water leaks from faulty plumbing, or
defective

roofs, or if you have peeling, flaking paint. You should cooperate with

the Management Office\'s or Landlord\'s efforts to repair any
deficiencies

and keep your home in good shape.

Remember that you as a parent play a major role in the prevention of
lead

poisoning. Your actions and awareness about the lead problem can make a

big difference.

I have received a copy of this Notice.

\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Date Signature

# CHAPTER 6. APPROACHES TO VALUE

[]{#__RefHeading___Toc169057564 .anchor}**6-1. GENERAL**.
\<[Top](#_top)\> The estimate of the market value represents an all-cash

price to the seller. This assumes that typical buyers will take

advantage of the most favorable mortgage financing available in

order to pay the seller all cash. The estimate does not assume that

the seller will finance the buyer in part or in whole by accepting a

first or second mortgage on the property in lieu of cash. The

estimate assumes the property in fee simple unencumbered by special

assessments or ground lease. The cost of acquiring a substitute

property by outright purchase, like the cost of assembling a

duplicate, is an upper limit of value.

Although the Department places more reliance on the market approach,

there are instances when the cost and income approaches are

required.

A. For a one family dwelling more than one year old only the market

approach to value is required.

B. When the subject is a two-unit building, the appraiser should

give some consideration to the income approach as well, but it

need not be a controlling factor.

C. If the subject is a three- or four-unit building, the income

approach must be used in addition to the market approach. While

the income approach would be given the most weight, the

appraiser must also consider the market value in arriving at the

final estimate of value.

D. When there is an unbalanced market of high demand and short

supply, and market prices appear to be excessive, the Chief

Appraiser should consider requiring the use of the cost approach

as well as an upper limit of value.

E. For new and existing properties less than one-year old, both the

cost and market approaches must be used; if it is a three- or

four-unit building, the income approach must be used as well.

When the difference between the estimates of value is 3 percent

or less, the best supported estimate may be used for the final

estimate of value.

F. For substantial rehabilitation or Section 203(k) applications,

replacement cost is to be used, as well as market value.

G. If the property is in an area designated by the Regional

Administrator as \"investor-dominated\", and is subject to

(6-1) modified cost, the modified cost approach, as described in this

Chapter must be used.

H. If the site on which the improvement is placed is subject to a

leasehold, the leasehold approach to value, as described in this

chapter must be used.

All appraisers serving on the fee panel must be knowledgeable

about and able to use all approaches to value.

#  SECTION 1. MARKET APPROACH

[]{#__RefHeading___Toc169057566 .anchor}**6-2. USE OF MARKET PRICE IN
VALUATION**. \<[Top](#_top)\> Estimates of market price are not

necessarily equal to estimates of value for long term use. Market

price indicates the price at which a property was currently bought

or sold, and that value may exist in an equivalent amount. The

relationship of value to estimated market price must be determined

through analysis of all circumstances affecting the property and the

transaction.

In a reasonably balanced market, with comparatively stable

economic conditions prevailing and sufficient relevant sales and

listings available, the market approach is the most reliable

method of estimating value. Like all other estimates, it must

be considered and weighed with good judgment and compared with

conclusions of value arrived at through other methods of

estimation. The importance and reliability of sales, listings,

and offers as indicators of value decrease in periods of rapidly

changing price levels, or in periods when housing supply and

demand are clearly not in balance. During such abnormal periods

adjustment must be made not only for the differences in the

properties, but also to reflect the amount attributable to the

unusual conditions existing in the market.

[]{#__RefHeading___Toc169057567 .anchor}**6-3. EXCLUSION OF NON-REALTY
ITEMS**. \<[Top](#_top)\> The selling or contract price is the

total amount received by the seller from the buyer. Closing costs

and items of prepaid expenses are not included in the Estimated

Market Value. It is the practice in some instances as an inducement

to buyers, to offer and to sell properties at a price which includes

items in addition to the real estate such as personal property items

not acceptable as mortgage security. Therefore market data used in

estimating the market value must be studied to determine that they

do not include amounts for items of this nature which are typically

paid by the buyer in addition to the contract price.

In some areas of the country, items such as stoves and refrigerators

are considered part of the real estate. In other areas, these items

are considered personal property and are not included in the sales

(6-3) price. Therefore, the appraiser should view these items in

accordance with local custom. If such items are included in the

contract in an area where they are not customarily included, the

appraiser must estimate the value of the items, deduct their total

value from the total reconciled value, and explain in comments

section of the URAR.

[]{#__RefHeading___Toc169057568 .anchor}**6-4. USE OF MARKET DATA
CONCERNING BUYDOWNS AND INCENTIVES TO BUY**. \<[Top](#_top)\> The

sales price of properties which offer the purchaser a cash refund by

means of a monthly payment reduction plan (buydown or similar

arrangement) is not to be used as comparable sales data unless the

worth of the total refund is deducted from the sales price to

reflect the true all cash payment to the seller. Appraisers must

make a dollar for dollar adjustment to comparables where the

seller\'s contribution exceeds limits established by HUD, currently

six percent.

A. Seller buydowns are payments for discount points, any type of

interest payments, or seller payment of closing costs normally

(under local market practice) paid by the buyer (including the

one percent loan origination fee). The sales price of the

comparable is selected as the base for making the adjustment in

order to simplify the process. To provide an abbreviated

example:

Sales Price of Comparable \$75,000

Dollar Amount of Seller Buydowns: \$8,750

Less: six percent of sales price 4,500 (excess) 4,250

\_\_\_\_\_\_ \_\_\_\_\_\_\_

Adjusted Value of Comparable Property \$70,750

To the extent possible appraisers should select comparable sales

from properties which sold without the benefit of various seller

buydowns in excess of six percent. When comparables are not

available without these types of incentives, adjustments must be

made to the sales price of the comparable to better reflect the

cash equivalent value of the property.

B. The instructions above, particularly the six percent allowance,

relate to seller buydowns as defined. Where sellers use other

known incentives such as trips, non-realty items, monthly

payments to principal, homeowner association or condominium

association fees, and similar gifts as inducements to purchase,

reductions in the sales price of the comparable must be made on

a dollar-for-dollar basis from the first dollar, without regard

to the six percent allowance. These instructions apply both to

new construction and sales of existing properties.

The appraiser will he responsible for making appropriate

notations on the URAR explaining all adjustments made.

[]{#__RefHeading___Toc169057569 .anchor}**6-5. MARKET COMPARISONS**.
\<[Top](#_top)\> In order to make the estimate of market value

it is necessary to thoroughly explore the market to determine the

price at which competitive properties are being offered and sold.

It is necessary to consider data from competing neighborhoods within

the area as well as data from the neighborhood. This data will

serve to indicate a range within which the market price of an

equivalent property will fall.

[]{#__RefHeading___Toc169057570 .anchor}**6-6. SELECTION OF COMPARABLE
PROPERTIES (Bracketing)**. \<[Top](#_top)\> In the selection

of properties for comparison it is desirable to choose some that are

equivalent and some that are nearly equivalent to the subject

property. For properties to be equivalent they must provide equal

accommodations, approximately the same number of square feet, the

same total number of rooms and the same number of bedrooms,

bathrooms, and so forth, and must be equally desirable to the same

group of occupants. Nearly equivalent properties should include

some better than the subject property and some not as good, to

establish a market price bracket for an equivalent property, in

order that comparisons can be made within the bracket. The

properties selected for comparison should furnish accommodations,

livability, and amenities within a range of similarity to the

subject property and within a price range that would be acceptable

to typical purchasers. For instance, a prospective purchaser may

desire a 3-bedroom, 2-bath ranch-type house in an outlying

neighborhood readily available to rapid transportation to the

downtown area. This purchaser may be willing to accept a 3-bedroom,

1-bath house in a similar location, or he/she may accept a 2-story,

3 or 4-bedroom house in a relatively close-in location. He/she will

ultimately purchase the property containing the greatest number of

elements desired, for the lowest price, limited of course by ability

to pay. In selecting the comparative properties utility is the

initial basis for selecting comparables; price is secondary.

[]{#__RefHeading___Toc169057571 .anchor}**6-7. USE OF CONVENTIONAL SALES
DATA**. \<[Top](#_top)\> When using conventional sales data,

the appraiser must be aware of the terms of the sale and adjust the

conventional sales price to reflect any unusually favorable terms.

In the case of a property sold with two or three mortgages or

trusts, the going rate of discount must be determined for the second

and/or third and the sales price reduced by the amount of the

discount. It is better to avoid such transactions if single

mortgages, trust, or all cash conventional sales are available.

Sales made by contracts for deed (land contracts) shall not be used

as conventional data due to the difficulty of determining discount

rates and unusual term arrangements.

A. When using sales data in appraising inner-city properties, the

appraiser must exercise extreme care to ensure that the property

selected for comparison is as nearly like the subject property

as possible. The appraiser should examine the comparable

(6-7) information carefully to determine the terms of sale and the

condition of the comparable, visually verify the description of

the property, and note any advantages or disadvantages found in

the neighborhood. The appraiser should carefully adjust the

sale to reflect conditions found.

[]{#__RefHeading___Toc169057572 .anchor}**6-8. EVALUATION AND USE OF
MARKET DATA**. \<[Top](#_top)\> In evaluating market data, the appraiser
determines:

A. If a sale, whether the price resulted from a normal transaction

under free and competitive conditions where the buyer and seller

acted intelligently and without duress, and were not motivated

by unusual or capricious desires; or,

B. If a listing, whether the price quoted is at or near the price

at which the property may be expected to sell rather than a

price to \"test the market\" or a price that would induce the

owner to sell although he has no particular desire to sell; or

C. That the data are factual and reflect the current market

reaction to pertinent factors of supply and demand. Generally

speaking, however, listings are not acceptable as comparables

since they represent the highest price for which a property is

likely to sell. Listings may be shown on an addendum to

indicate the asking prices in a neighborhood, but only in

extremely unusual circumstances, such as an area in which there

has been virtually no activity for some time may they be used.

In those cases, the appraiser must verify all information and

discount as necessary to make a judgement as to the amount for

which the property is anticipated to sell. When a listing or

listings are used, the Reviewer must check data to verify that

there have been no sales in that area for some time.

[]{#__RefHeading___Toc169057573 .anchor}**6-9. QUANTITY OF DATA**.
\<[Top](#_top)\> There must be a sufficient number of transactions

used for comparison to firmly establish the present market attitude

toward the subject property. A limited number of sales or listings

may be sufficient when appraising a property of a design that is

typically constructed in comparative neighborhoods. A property of

unusual design will present a more difficult appraisal problem and

may require an extensive list of comparisons.

[]{#__RefHeading___Toc169057574 .anchor}**6-10. MARKET PRICE
COMPARISONS**. \<[Top](#_top)\> The existence of rapidly rising or

declining prices of residential properties, as indicated by data,

must be recognized in the appraisal. The appraiser will analyze the

data and determine the rate of increase or decrease in residential

prices. The rate of increase or decrease from the date of the sale

of the comparable to the date of the appraisal will have an effect

on the value of a property and must be considered. The appraiser

will

(6-10) adjust the sales price of the comparables by the rate of increase
or

decrease for the appropriate time, (three months or more) to

determine a range of indicated value that is relevant to the current

market. It is not appropriate to adjust listings for any applicable

rate of increase.

A. Market Price Comparison. Market price comparisons are made

using sales and listings of competitive properties as guides in

estimating the amount likely to be paid for the property under

appraisal. Experienced appraisers familiar with the market in

the community rely on their experience and comprehensive

knowledge of current sales and listings to make a preliminary

estimate of the price range in which the property under

appraisal is likely to fall. Thus, sales and listing data

should cover the broad range of the market including FHA, VA,

and conventional transactions.

B. Preliminary Price Comparison. Each appraisal report will

contain at least one conventional comparable, if available, and

be so designated on the appraisal form. The data should include

comparable sales in competing neighborhoods and should not

necessarily be limited to the subject neighborhood or

subdivision or block. Sizes, accommodations, locations and date

of sale are considered in this preliminary process of

establishing a price range.

C. Specific Estimate. A more specific estimate of the market price

must be made somewhere between the upper and lower limits of the

preliminary price range. This is done by a more detailed

comparison of the subject property with those selected as

comparable. This refining or pin-pointing process includes

making lump sum allowances for plus or minus features.

[]{#__RefHeading___Toc169057575 .anchor}**6-11. ADJUSTMENTS**.
\<[Top](#_top)\> In making adjustments to equalize the comparable

properties to the subject property, the appraiser should adjust only

where the reason for the adjustment has a substantial effect on

value. \"Site/view\" for example is not usually adjusted in an urban

or suburban area because there is not usually much difference

between size of sites or the view. In most neighborhoods sites are

of typical size and may range from 50 by 100 feet to 60 by 100 feet,

or 50 feet by 100 feet to 50 feet by 120 feet. Size alone is not

necessarily a reason for adjustment. Topography is of far greater

importance. If a lot is much larger than others, it may be far less

desirable if it has a steep slope rather than a gentle slope or is

of unusual shape, such as a triangle.

(6-11) With respect to \"view,\" most urban and suburban dwellers see
only

the streets and homes surrounding them, so it is difficult to

justify a difference in \"view.\" One instance in which an adjustment

for \"view\" is justified is if within a neighborhood, one side of a

street may overlook a city or picturesque valley and is sufficiently

pleasing to warrant more desirability, thereby increasing its value.

A. \"Location\" adjustments are also very seldom justified. If the

comparable is within a reasonable distance from the subject, as

it should be, and is in the same typical surroundings and

environment, there should be no reason for an adjustment.

In summary, if the appraiser has selected similar properties

within a reasonable distance from the subject property, there

should be only a minimal number of adjustments to equalize the

comparables to the subject property.

[]{#__RefHeading___Toc169057576 .anchor}**6-12. RELIABILITY OF SALES
DATA**. \<[Top](#_top)\> Consideration must be given to factors

surrounding the sale of a comparable property such as date and terms

of the sales transaction. In some instances the price paid may have

resulted from necessity or nontypical points of view of an

individual purchaser. The bargaining process between a buyer and

seller or their representatives may affect the amount paid resulting

in a sales price above or below the general market level for such a

property.

A. Sales data are reliable to the degree that they embrace

information which accounts for the prices paid including:

1\) The motives of the buyer and the seller.

2\) Relative skill and intelligence of the buyer and seller in

negotiating the sale.

#  SECTION 2. REPLACEMENT COST

[]{#__RefHeading___Toc169057578 .anchor}**6-13. USE OF REPLACEMENT COST
OF PROPERTY IN VALUATION**. \<[Top](#_top)\> In accordance

with the principle of substitution the upper limit of value is the

cost of replacement of the property assuming the building

improvements to be in new condition. Therefore, the replacement

cost of property is estimated to make possible the application of

the substitution principle. Estimates of replacement cost of

property are not estimates of value, although they indicate the

possibility that value in an equivalent amount may exist. Value

depends entirely upon usefulness, not upon the cost of replacement.

Value tends to conform to cost, but this is not to imply that it is

always equivalent to cost.

A. Typical Replacement Cost. The replacement cost estimate must

reflect the costs typically found in an area and not necessarily

the costs of a particular builder or owner.

B. Unusual and Non-Typical Costs. Some of the items or allowances

in the cost estimate may not represent equivalent value in a

particular case. An owner might erect a house which would cost

more than the houses which generally characterize the

neighborhood, but the value of the home to the typical

prospective owner in that neighborhood might be less than the

replacement cost of the property. Cost of construction also may

be in excess of value at a given time because under some

circumstances a reduction in cost may be in prospect. If

construction costs decline, value may also decline if it was

originally equal to cost.

[]{#__RefHeading___Toc169057579 .anchor}**6-14. CONDITIONS UNDER WHICH
VALUE EQUALS REPLACEMENT COST**. \<[Top](#_top)\> The value of

a dwelling property may be equivalent to its replacement cost only

if:

A. No decline in the level of construction costs is in prospect;

B. The building improvements are in as good condition as new;

C. The building improvements represent the highest and best use for

the land;

D. The replacement cost and the expense of maintenance and

operation of the mechanical equipment and accessories are not

excessive when related to the income group which comprises the

market for the property.

(6-14) E. The replacement cost of the property does not exceed the price

at which equivalent completed properties may be purchased; and

F. There is evidence of continued demand for such residential

property at a price equivalent to its replacement cost.

[]{#__RefHeading___Toc169057580 .anchor}**6-15. PRINCIPLE OF
SUBSTITUTION**. \<[Top](#_top)\> In accordance with the principle of

substitution, the estimate of replacement cost of a property must

include all items of expense which a typical prospective owner would

meet in acquiring a property and duplicating its improvements upon

an equivalent site. Such an estimate would include:

A. Estimated replacement cost of on-site improvements in new

condition.

B. Estimated market price of an equivalent site.

C. Miscellaneous allowable costs.

It would not include costs incurred in the transfer and acquisition

of title which must be paid in addition to the contract price of the

property. These are included under Closing Costs.

As a practical matter, it is generally found that most construction

cost data are obtained from builders building for sale rather than

from contractors bidding competitively. For this reason only, a

fourth category of costs is included in the estimate of replacement

costs, i.e., marketing expense. The inclusion of this item along

with operative builder construction costs is considered justified on

the assumption that the operative builder costs, including overhead

and profit and marketing expense, will not exceed the cost to an

individual who employs a contractor to construct a dwelling on

his/her own site.

[]{#__RefHeading___Toc169057581 .anchor}**6-16. REPLACEMENT COST OF
ON-SITE IMPROVEMENTS**. \<[Top](#_top)\> The Marshall and Swift

square foot method will be used for all proposed and existing

properties under one year of age.

A. Since the square foot method is a simplified procedure, all

appraisers must have the knowledge and skill to prepare the

Marshall and Swift Form #1007 when necessary except for the

exceptional case involving custom built homes or unique building

types requiring the segregated method.

B. Construction with which HUD is involved should most probably be

\"fair,\" \"average,\" or \"good\" quality. Basically, mass produced,

tract-built homes are either \"fair\" or \"average,\" meeting only

(6-16) the minimum construction requirements of lending institutions,

mortgage insuring agencies and building codes. Appraisers must

be sure to review the basic description of each quality type.

C. The appraiser will prepare the Marshall and Swift Form #1007 (or

#1008, as appropriate) for each proposed construction case in

accordance with the construction quality of the property as

shown in the Marshall and Swift Cost Handbook. The pages from

which the appraiser obtained the figures (usually two pages) are

to be xeroxed on an 8-1/2 x 11 sheet of plain paper, with the

cost figures encircled, and attached to the Form #1007 (or

#1008), as shown in the sample on page 6-13a and b. This

procedure will simplify the desk review since the desk reviewer

need only check the quality type and compare the figures used by

the appraiser with the attachment and the accuracy of the

mathematical calculations.

D. Marketing expense is calculated on the total amount obtained

from addition of the replacement cost of improvements and the

current cost multiplier (line 28) divided by the complement of

the marketing expense.

For example: Assuming local market expense is 6%. The

complement of 6% is .94; therefore, if the sum of the items

mentioned above is \$42,356, the marketing expense will be

\$2,704, indicating a total replacement cost of \$45,060.

(\$42,356 : 94% = \$45,060 minus \$42,356 = \$2,704.)

E. This calculation is then entered on the Marshall and Swift Form

by crossing out line 30 and entering Marketing Expense as shown

in the example which follows. To this amount is then added the

estimated value of an equivalent finished lot (line 33). (See

page 6-13B)

F. Upon completion, the Marshall and Swift form and the attached

page of encircled cost figures are to be attached to the URAR.

G. Field Offices and Direct Endorsement Mortgagee Underwriters, as

well as appraisers, must ensure that their Marshall and Swift

handbooks are kept current at all times.

[]{#__RefHeading___Toc169057582 .anchor}**6-17. ESTIMATED MARKET VALUE
OF AN EQUIVALENT SITE**. \<[Top](#_top)\> To determine the

market value of an equivalent site, it may be necessary to use one

or more of the three different methods of analysis. The three

methods are: (1) Market Comparison, (2) Land Residual, and (3)

Production Cost Method.

(6-17) A. Market Comparison. Where available sites are in supply

sufficient to result in free sales transactions, the estimate

found by comparison will carry the greatest weight. As this

supply diminishes, the estimation processes will progress

through the Land Residual and Production Cost methods. These

methods are used in those instances when the factual data for

Market Comparison are found to he inadequate or inconclusive.

They can, however, produce amounts which may serve to bracket

and prove the range within which the estimated market price of

an equivalent site will be plausible and acceptable.

1\) The market comparison method should be used whenever

possible. A price currently being paid in the market for

sites offering similar utility and amenities establishes a

solid basis for a defensible conclusion.

2\) Consideration will be given to those factors, both

favorable and unfavorable, recognized by the typical

purchaser (i.e., neighborhood desirability, topography,

trees, size and utility of site, adequacy of utilities and

street improvements, etc.). In making a market price

comparison, consideration should include vacant sites

having utilities, etc., installed and ready for improvement

with dwellings. Transactions involving single or small

group purchases in newly improved areas offer a better

comparison than large group purchases. They will also

provide better comparison than the prices paid for isolated

remaining sites in built up neighborhoods. In the use of

comparative data, the Appraiser will consider the

circumstances surrounding each sale or offering.

B. Land Residual. Most localities provide a sufficient number of

comparisons where the replacement costs and prices of newly

constructed homes recently sold would approximate those in any

proposed case. By breaking down the total sales price, it is

possible to discover the maximum sum attributable to land.

Thus, if in the subject or competing neighborhoods the typical

homes are selling at \$75,000 and the cost of all buildings and

on-site improvements including marketing expense is estimated at

\$60,000, obviously the land represents no more than \$15,000 of

the total. This is the Land Residual approach in which the sum

of \$15,000 will represent the maximum and probable amount

attributable to land.

C. Production Cost. The production costs currently required to be

expended by a developer to produce sites in an active sales

(6-17) market are often indicative and useful. Any analysis of the

separate cost items, however, demands comprehensive study to

determine their reasonableness and reliability.

1\) Included in this list of items will be:

a\. Supportable raw land costs.

b\. Typical costs encountered in the installation of

utilities and improvements, including the cost of

underground utility wiring wherever required.

c\. Engineering and legal expense: title and legal

expenses incidental to acquisition; engineering and

recordation of subdivision and dedication plats.

d\. An overhead and Profit allowance that is logical,

based on local custom rather than a fixed amount or

percentage.

e\. Carrying charges for a comparatively brief period.

f\. Additional cost to retain mature and attractive trees

or to substitute with new planting.

2\) Raw acreage land costs are developed in the market by

comparison. In the comparative process, consideration is

given the area and dimensions of compared parcels

especially as such factors may have a bearing upon the

platting of the land, the availability of utilities or cost

of extension, convenience to urban centers, etc. Current

market data in the form of sales and asking prices will be

studied, and any unusual circumstances surrounding each

transaction or proposal will be given proper consideration.

In considering parcels offered for sale, consideration will

be given the absorptive capacity of the community, inasmuch

as available land may over supply the need for building

sites and list prices may not be firm.

D. Correlation and Final Estimate. The estimate of the market

value of a site is made by considering all pertinent

information. If market data are adequate in amount and quality,

this approach will be the control since it is the most reliable.

If Land Residual and Production Cost Methods are also used,

correlation of the three approaches should be indicative of

market price. The accuracy of the final estimate will depend

upon the proper assembling, analysis and judgment of the data by

the appraiser.

(6-17) 1) When estimates of market values are being made

simultaneously for a number of sites within a subdivision,

differences in characteristics, if any, must be taken into

account and reflected in the estimates.

2\) Indiscriminate assignment of the same market value to

every site in a subdivision without regard to differences

in characteristics is illogical and contrary to sound

appraising.

E. Value of Trees. Among other neighborhood amenities, the

presence of suitable mature trees in the neighborhood will add

to its attractiveness and improve the general level of

marketability. Land suitable for subdivision development will

be made desirable by the presence of mature trees which can be

retained as a part of the finished property. Developers should

therefore be encouraged to retain those trees which will

increase the amenities of residential properties. This added

attractiveness will be reflected in the individual lot prices

which will usually be higher when compared to lots in

neighborhoods without trees. The attitude of the typical

purchaser as expressed by market prices paid for properties will

determine the price increase which should be reflected due to

the presence of trees of established growth. The physical

condition, type, and location of the trees with respect to each

site are also important considerations.

[]{#__RefHeading___Toc169057583 .anchor}**6-18. SITES SOLD BY A PUBLIC
BODY**. \<[Top](#_top)\> Where sites are sold by a municipality

or other public body to a developer for specific reuse purposes, the

market value of an equivalent site estimate will be the lesser of

\(1\) the amount found by comparison with other sites having the

amenities and improvements that the subject site will have upon

completion, and (2) the dollar amount paid by the purchaser as set

forth under the terms of the purchase contract with the public body,

plus an estimate of those costs required by the contract or the cost

to fully improve the site, i.e., the production cost but excluding

profit. This policy is applicable to all Sections of the National

Housing Act.

[Click Here for
Graphic](http://www.hudclips.org/sub_nonhud/cgi/pdfforms/pg6-13a.pdf)

SQUARE FOOT APPRAISAL FORM

[Click Here for
Graphic](http://www.hudclips.org/sub_nonhud/cgi/pdfforms/pg6-13b.pdf)

#  SECTION 3. CAPITALIZATION OF INCOME

[]{#__RefHeading___Toc169057585 .anchor}**6-19. GENERAL**.
\<[Top](#_top)\> Classic appraisal practice offers two methods of

appraising two to four unit residential structures. Both methods

consider the type of neighborhood in which the properties are

located. If the property is located in an area of typically

non-occupant owners, then the property is considered to be owned for

its rental income and thus is capitalized using the rental returns

as the basis for value. When the property is located in an area

that is predominantly owner-occupied, or one in which the owner

lives in the property and is primarily interested in the amenity

returns of the property, the market comparison approach is used.

Appraisals will be performed in accordance with the subsequent

instructions.

A. When one side of a two unit property is owner-occupied, the

Department requires only the market approach. If a two unit

property is located in a predominantly rental neighborhood and

is not owner occupied, the income approach as well as the market

approach should be used.

B. All three and four unit existing properties must be appraised

using both the income and market approaches. Values should be

ascertained using gross rent multipliers as a guide in addition

to using direct market comparisons.

C. Proposed construction or new properties less than one year old

must be processed using the cost approach as well as the income

and market approaches for income properties.

[]{#__RefHeading___Toc169057586 .anchor}**6-20. VALUE OF RENTAL INCOME
PROPERTIES**. \<[Top](#_top)\> In appraising rental income

properties, the value indicated by the capitalization of rental

income arises out of the primary appeal of the property as an

investment. In usual circumstances, such value by capitalization

will approximate or equal the cost of acquiring an equivalent

property. In rental income cases, the Estimate of Value (excluding

closing costs) will not exceed the lower of the Value of the

Capitalized Income, or the Estimate of Market Price.

[]{#__RefHeading___Toc169057587 .anchor}**6-21. DETERMINATION OF RENTAL
VALUE**. \<[Top](#_top)\> Rental value refers to the amount

which prospective typical tenants are justified in paying for the

use of a property. The monthly rent which typical year-round

tenants would pay for the use of the subject property is its rental

value. This concept presupposes that tenants have knowledge of the

rentals paid and asked in the community and that they will pay no

more than the lowest rental at which competitive accommodation are

available.

[]{#__RefHeading___Toc169057588 .anchor}**6-22. BASIS OF THE ESTIMATE**.
\<[Top](#_top)\> The estimate of monthly rental value assumes

that the dwelling is unfurnished. Dwellings are considered to be

unfurnished even though equipped with ranges, refrigerators, or

other items of equipment if the equipment is customarily included in

similar properties offered for rental. The estimate of monthly

rental value also assumes that the landlord will furnish those

services (electricity, gas, water, heat) that are customarily

furnished by owners offering dwellings of similar type for rent.

[]{#__RefHeading___Toc169057589 .anchor}**6-23. SEASONAL RENTAL**.
\<[Top](#_top)\> Monthly rentals obtainable from seasonal occupants

in areas in which there are wide seasonal fluctuations in rents, as

in summer or winter resorts, shall not be used to estimate the

monthly rental value. The estimate of monthly rental value must be

based upon that amount which a typical tenant would be warranted in

paying for the right to occupy the premises on a year-round basis.

[]{#__RefHeading___Toc169057590 .anchor}**6-24. GROSS RENTAL ESTIMATE**.
\<[Top](#_top)\> The Gross Rental estimate is the gross

monthly rental value of the property without loss of rent from any

cause. The rental value estimate is the sum of the rental values of

the individual units.

[]{#__RefHeading___Toc169057591 .anchor}**6-25. BASIS OF COMPARISON**.
\<[Top](#_top)\> All rental estimates must be on a comparative

basis. In determining monthly rental value, competitive rents asked

for or paid for equally located accommodations must be ascertained.

Rentals for inferior or superior accommodations also may be used for

purposes of comparison by making adjustments for differences in

rental values.

A. In estimating monthly rental value essentially the same methods

of comparison are used as when estimating available market

prices of properties. In comparing rentals for different

properties, the conditions of tenancy must be taken into

consideration. Comparisons must be made with rental prices for

dwelling units which include the same services and equipment as

those assumed in the subject dwelling units or necessary

adjustments must be made before rentals may be used for purposes

of comparison.

B. In estimating rents, concessions, if any, must be ascertained.

For example, one month\'s free rent for each 12-month lease is

equivalent to reducing the monthly rental by 1/12.

[]{#__RefHeading___Toc169057592 .anchor}**6-26. RENT MULTIPLIERS**.
\<[Top](#_top)\> Monthly gross rent multipliers are factors which

express the relationship between the estimate of market rent and the

estimate of value by the income approach. The appropriate rent

multiplier is found by dividing the sales price of a number of

comparable properties by their actual monthly rents at the time of

their sale before expenses or vacancy and collection losses are

deducted.

(6-26) A. The monthly gross multiplier is affected by the location,

condition, remaining economic life, price or rental range.

B. \"Backing\" into the rent multiplier is not a valid approach

to value.

[]{#__RefHeading___Toc169057593 .anchor}**6-27. VARIABLES IN RENT
MULTIPLIERS**. \<[Top](#_top)\> Since differences usually exist

between the relationship of estimated monthly returns to typical

buyers and the capitalized income according to rental ranges, rent

multipliers will vary with rental ranges. Furthermore, rent

multipliers vary within the same rental ranges.

Rent multipliers selected for use in making a capitalization

estimate in a given case must he based upon comparison with rent

multipliers applicable to other cases having approximately the

same rental appeal and economic life.

A. Remaining Economic Life. Rent multipliers vary with the

remaining economic life of properties. Two properties producing

identical returns and having the same owner-occupancy appeal

will not capitalize at identical amounts if there is a

difference in their remaining economic life. Higher rent

multipliers apply when properties have long remaining economic

life and successively lower rent multipliers apply as remaining

economic life decreases.

B. Rental Ranges. Experience demonstrates that rents do not

increase proportionately with increase in value of income

dwellings. For example, dwellings valued at \$40,000 may have a

range of rental value of \$350 to \$400 per month; dwellings

valued at \$45,000 may have a range of rental value of \$425 to

\$500 per month, while dwellings valued at \$80,000 may have a

rental range of \$550 to \$650 per month.

[]{#__RefHeading___Toc169057594 .anchor}**6-28. ACCURACY OF ESTIMATES**.
\<[Top](#_top)\> Because of the importance which an estimate

of rental value for the subject property has in the determination of

values, great care must be taken in this endeavor. The estimate

must not be an offhand opinion, but the result of thorough

investigation and comparison. Small inaccuracies have an important

effect on capitalized income. For example, a difference of \$15.00

in the Estimate of monthly rental value when used with a rent

multiplier of, say, 110 will result in a difference of \$1,650 in the

estimate of capitalized value.

#  SECTION 4. MODIFIED COST

[]{#__RefHeading___Toc169057596 .anchor}**6-29. SPECULATIVE SALES AND
MODIFIED COST APPROACH**. \<[Top](#_top)\> The purpose of this

section is to describe procedures relating to the identification of

ownership of existing dwellings and to distinguish between those

applications which will he subject to standard appraisal

instructions and those subject to the modified approach.

The use of the modified cost approach and the procedures described

herein shall be at the option and discretion of the Regional

Administrator. The option to eliminate this procedure is not,

however, applicable in those areas identified by the Field Office as

being speculator-dominated. (Speculator-dominated areas are those

areas where speculators are the primary purchasers and sellers of

the properties.)

While the Cost approach recognizes the cost of constructing a new

home and sets an upper limit of value (because a buyer is not

warranted in paying more for a property than it would cost to

construct a similar property), the Modified Cost approach involves

the acquisition cost of an existing property and includes attendant

costs such as expense of purchase, interim financing, holding costs,

real estate broker\'s commission and discount points. In this

instance, a purchaser is not warranted in paying more for an

existing property than the acquisition cost plus repairs and a fair,

reasonable profit to an investor.

Therefore, in an area where speculators are purchasing,

rehabilitating and selling properties, and such an area has been

declared by the Regional Administrator to be \"speculator-dominated\",

it is important that the appraiser use the modified cost approach as

well as the market approach to value to ensure against inflated

sales prices caused by unreasonable speculator profits.

The Field Office is to provide fee appraisers, mortgagees and Direct

Endorsement staff appraisers with a list of areas, if any, subject

to the modified cost approach and update when appropriate.

The Valuation Branch will obtain overhead and profit data and

furnish appraisers and Direct Endorsement Mortgages Underwriters

with a reasonable \"overhead and profit percentage.\" A reasonable

profit is one which is required in order to attract legitimate

sponsors to engage in the purchase, repair or rehabilitation, and

resale of older properties in the locality. The profit allowance

must be such that it will discourage the \"speculator\" thereby

excluding from HUD insured mortgages the possibility of exorbitant

profits at the purchaser\'s expense.

(6-29) A. Application Requirements. The following information will be

required with every home mortgage application for existing

properties including those to be rehabilitated: (Format

Provided as Figure 1, Page 6-23a).

1\) Every application must be accompanied by the name and

address of the present owner, the date the property was

acquired (year only, if over two years), and the present

status of the property with respect to any option or

contract to sell and the amount involved.

2\) In cases where the property was acquired by a non-occupant

owner who has owned the property less than two years from

the date of application or if the owner (irrespective of

term of ownership) has optioned or contracted for sale of

the property to a purchaser who intends to resell as soon

as possible (speculator, investor, or rehabber), the

mortgages must submit the last arms-length purchase price

of the property.

3\) If the application falls within category 2) above, a list

of improvements to the property (excluding maintenance

repairs) and the cost of same must also be provided, but

only if the property was acquired by the seller within the

last two years. When an application is submitted on a

property owned by a non-occupant owner who has held title

to the property for over two years, the Modified Cost

Approach will not be used in the determination of value.

4\) If the property was purchased more than once within the

last two year period and the transactions were to

non-occupant owners, the aforementioned information will be

required on such transactions.

5\) The following language will be furnished by the mortgagee

with the application for conditional commitment in

HUD-processed cases:

\"In submitting this application for a conditional

commitment for mortgage insurance, it is agreed and

understood by the parties involved in the transaction, that

if at the time of application for a Firm Commitment the

identity of the seller has changed, the application for a

Firm Commitment will be rejected, and the application for a

Conditional Commitment will be processed upon request by

the mortgagee.

\"It is further understood and agreed that in submitting the

request for a Firm Commitment for mortgage insurance the

seller, the purchaser, and the broker involved in the

(6-29) transaction shall each certify that the terms of the

contract for purchase are true to his/her best knowledge

and belief and that any other agreement entered into by any

of these parties in connection with this transaction is

attached to the sales agreement.\"

6\) When discount points are to be paid for by the seller who

has an arms-length relationship with the mortgages, a

mortgagee\'s certification of the amount of discount that

will be charged will be submitted at firm commitment. A

request for reconsideration and revision of the mortgage

amount may be required.

B. Use of Standard Appraisal Procedures. Standard appraisal

procedures will he followed in all cases not covered by the

guidelines for the application of the modified cost approach

described below. This means all cases not involving a

speculator or other person trading in properties are exempt from

the modified cost approach.

C. Use of the Modified Cost Approach. If the date of purchase of the

property is less than two years prior to the date of application and the

owner is not the last permanent occupant of the property or the last

permanent owner (irrespective of length of ownership) has optioned the

property to a purchaser who intends to resell as soon as possible, the

estimated value of the property for mortgage loan purposes (irrespective
of

the home mortgage insurance program to be used) shall not exceed the
lesser

of:

1\) The value found by market comparison in accordance with

applicable instructions, or

2\) the sum of the following:

a\. The last arms-length purchase price and expense of

purchase plus cost of improvements already made, or

present option or contract price, whichever is

applicable.

b\. Interim financing expense.

c\. Holding costs.

d\. The HUD estimated cost of required repairs.

e\. A reasonable overhead and profit allowance on the

above.

(6-29) f. A typical broker\'s commission on the sum of the

above.

g\. Discounts paid by the seller (only where there is an

arms-length relationship between the seller and the

lender).

D. Conditional Commitments or Statements of Appraised Value

Containing Repair Requirements.

If the HUD Estimate of Value is limited by the modified cost

approach as described above, the following commitment condition

will be included.

\"This Conditional Commitment/D.E. Statement of Appraised

Value is issued upon the condition that the specified

repairs or alterations will have been made prior to

issuance of the firm commitment as evidenced by a clear

final inspection report. The estimated total cost of the

foregoing repairs is \$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

It is understood and agreed that in the event the mortgage

fails to submit satisfactory evidence that the actual cost

of required repairs or alterations equals or exceeds the

estimate herein, the estimate of value stated above will be

reduced by the amount of the difference between the

estimated cost of repairs required and the actual cost of

required repairs performed.\"

Furthermore, for HUD processed cases, the mortgagee is required

to certify as to the amount of discount to be charged. This is

to be submitted with the firm commitment application. A request

for reconsideration should then be submitted to the Valuation

and Mortgage Credit staffs for revision of the conditional and

firm commitments if appropriate. This processing should be

accomplished within a two-day period. For cases processed under

Direct Endorsement, the mortgagee need only to provide the

certification when submitting the case for endorsement.

E. Firm Commitment Processing. Processing will be completed in

accordance with HUD Handbook 4155.1.

F. Optional Firm Commitment Processing. In instances where

vandalism of vacant properties is evident and repaired homes are

vandalized before occupancy, an alternative procedure may be

adopted by the Field Office. This procedure will permit the

non-occupant owner to complete needed or required repairs to the

property prior to submitting his/her certified statement of

costs which is typically required at the time of firm

commitment:

(6-29) 1) When accompanied by a written statement from the owner

concerning conditions of vandalism, a mortgagee may be

permitted to submit a firm application when the Modified

Cost Approach is applicable without the certified statement

of costs.

2\) Firm commitment processing will be based upon the value as

estimated at the time of Conditional Commitment/Statement

of Appraised Value.

G. Discount Points.

1\) Discount points actually paid by the seller may be

included, provided the seller has an arms-length

relationship with the mortgagee charging the discount and

provided further that the discount is not in excess of

typical discounts being charged by mortgagees in similar

transactions.

2\) The validity of the arms-length relationship will be

determined by requiring a statement from the mortgages

attested to by the seller\'s signature, that the mortgagee

has no interest, past or prospective, in the identified

property, or in the business affairs of the seller.

3\) Where discount points are claimed by the seller and the

modified cost approach governs the value, the amount of the

discount allowed will be added to the total after

computation of the overhead and profit and broker\'s

commission. (No overhead and profit or commission will be

applied to the discount.)

H. Veterans Administration Conversions, Certificate of Reasonable

Value (CRV). Applications for a conditional commitment based on

CRV estimates of value which must be processed using the

modified cost approach will be rejected and the mortgagee

notified that a HUD conditional commitment based upon a HUD

appraisal will be required.

I. Implementing the Modified Cost Approach. The directives in this

paragraph supplement the outstanding appraisal instructions in

this Handbook. It must be emphasized that in appraising amenity

income properties, the market approach is the most reliable

indicator of value and must be used as the principal approach.

The Modified Cost Approach to value will be used to prevent

unreasonable disparities between net sellers\' prices plus

typical cost and HUD values with the attendant implication of

excessive profits. The information concerning ownership,

acquisition prices, repairs, and other costs should be an

invaluable source of data to implement this approach.

(6-29) 1) Purchase and Option Prices. The last arms-length purchase

price paid by the seller or the present option or contract

price (to the speculator) and the cost of repairs already

made must be verified by evidence in the form of contracts

or other bona fide information (copies of deeds with

stamps, if applicable, certified statements from a

principal or broker involved, etc.) furnished by the

principals through the mortgagee and shall become a part of

the file.

2\) Data Requirements. Data are required relating to the five

items described below. Verification and comparison of

substantial amounts of these data are necessary to assure

their validity. The following data will be assembled and

provided to appraisers. The data must he updated as needed

to assure reliability.

a\. Expenses incurred in connection with the purchase from

the original owner (recording charges, transfer taxes

and any other expenses of purchase).

b\. Interim Financing Expense (interest on borrowed money

necessary to carry the property until resale)

expressed as a percentage which will be applied to the

purchase or option price.

c\. Expenses incurred in connection with holding the

property awaiting sale and closing (such as taxes,

insurance, water and heating costs, grass-cutting,

etc.). These may or may not be elements of expense,

particularly if in the typical transaction the sale is

consummated early or the speculator rents the property

during the sale period.

d\. The Chief Appraiser or designee will obtain overhead

and profit data and furnish the Valuation staff and

fee appraisers with a reasonable overhead and profit

percentage. A reasonable profit is one required to

attract legitimate sponsors to engage in the purchase,

repair or rehabilitation, and resale of older

properties in the locality. The purpose is to exclude

from HUD insured mortgages the possibility of

exorbitant profits at the purchaser\'s expense.

e\. Typical broker\'s commission charges (percentage) on

properties of this type.

3\) Repairs. The HUD Estimated cost of repairs, proposed or

required to make the subject property acceptable, must be

determined by the best judgement of the appraiser.

(6-29) 4) Appraisal Instructions Using the Modified Cost Approach.

The appraiser will perform the appraisal using the market

approach to value as in any ordinary case. In addition,

he/she will complete the method of arriving at a value by

the modified cost approach, as shown in the following

example, on a separate sheet of paper which is to he

attached to the URAR. This value is then entered on the

back of the URAR in the cost approach box where the words

\"indicated value by cost approach\" is shown and inserting

the word \"modified\" above the word \"cost.\"

EXAMPLE

a\. Purchase or Option Price (Includes \$ 6,200

cost of improvements already made)

b\. Expense of Purchase 75

c\. Interim Financing Expense 140

(9%, 3 months on \$6,200)

d\. Holding Costs (NONE)

e\. Repairs 1,800

\_\_\_\_\_\_

f\. TOTAL \$ 8,215

g\. Overhead and Profit \$ 8,215

20% of \$8,215 = \$1643 1,643

\_\_\_\_\_\_\_

\$ 9,858

h\. Broker\'s Commission 5% = 518

\$9,858 = \$10,376 \_\_\_\_\_\_\_

\_\_\_\_\_\_ \$10,376

95%

i\. Discount Points 200

j\. Modified Cost Approach = \$10,576

When the amount calculated above and entered in the cost

section of the URAR limits the value of the property, this

amount will he entered on the line marked \"Final

Reconciliation\" with the words \"Modified cost is the lesser

of the two approaches to value.\" On the line below where

the final estimate of value is shown, the word \"Market\" is

to be lined out so that it reads: \"I estimate the value,

as defined . . . . \"

NOTE: Where discount points are allowed, the discount will

be added to the total after computation of the overhead and

profit and broker\'s commission.

Figure 1

Appraisal Method

Speculative Sales :

Modified Cost Approach

[Click Here for
Graphic](http://www.hudclips.org/sub_nonhud/cgi/pdfforms/pg6-23a.pdf)

#  SECTION 5. LEASEHOLDS

In the event the mortgage is secured by a leasehold estate rather

than a fee simple estate, the value or replacement cost of the

property described in the mortgage shall be the value or replacement

cost of the leasehold estate (as determined by the commissioner)

which shall in all cases be less than the value or replacement cost

of the property in fee simple. The Leasehold Estate may consist of

both the improvement and the land, although in most cases the

improvement is purchased in fee simple, subject to ground rent.

[]{#__RefHeading___Toc169057598 .anchor}**6-30. DEFINITIONS**:
\<[Top](#_top)\>

A. LEASED FEE: An ownership interest held by a landlord with the

right of use and occupancy conveyed by lease to others; usually

consists of the right to receive rent and the right to

repossession at the termination of lease.

B. LEASEHOLD ESTATE: The right to use and occupy real estate for a

stated term and under certain conditions which have been

conveyed by a lease.

C. GROUND RENT: Rent paid for the right to use and occupy land;

the portion of the total rent allocated to the underlying land.

D. CAPITALIZATION: The conversion of income into value.

[]{#__RefHeading___Toc169057599 .anchor}**6-31. TENANT-OCCUPIED
PROPERTY: (LAND AND IMPROVEMENT)** \<[Top](#_top)\>

When an application is received for the purchase of a property which

is encumbered by a lease, other than for ground rent, i.e.,

tenant-occupied under a lease previously given by the seller, it is

valued subject to the effects of the encumbrance.

A. Short-Term Leases. Single-family dwellings that are encumbered

by a short-term lease (23 months or less) will be processed as

if in fee simple. The value will be found in fee simple with a

notation that the property is encumbered by a lease. The

Mortgage Credit Examiner will base his calculations of debt

service on the estimate of typical net income. The terms and

contract amount of the lease will be noted on the URAR along

with the rent typically found in the market.

B. Long-Term Leases. Single-family dwellings that are encumbered

by long-term (24 months or more) leases may suffer a lesser

value depending on the terms of the lease and conditions

concerning periodic rent adjustments, if any.

[]{#__RefHeading___Toc169057600 .anchor}**6-32. ELIGIBILITY OF LEASEHOLD
ESTATES (GROUND LEASES)**. \<[Top](#_top)\>

A. When a site upon which a building is constructed is subject to a

lease, the value of the property lies in the value of the

building and the leasehold estate. Leaseholds are acceptable

when they contain the following conditions. (There is no

requirement that evidence be provided that leaseholds are

marketable in the community.)

1\) Term. A term extending at least ten years beyond the

mortgage maturity.

2\) Rental. Ground rentals are established in the local market

place, but in no case may the annual rental exceed the

lesser of 12 percent of the site value, or the mortgage

interest rate at the time of underwriting, less two

percent, times the site value.

Example:

Value of Leasehold \$51,000

Value of comparable site 9,000

Ultimate maximum annual rental 1,080

(yield rate 12 percent)

Maximum annual rental if mortgage 900

interest rate is 12 percent

(yield rate 10 percent)

These provisions represent a maximum limitation, and are

not intended to he used as standards in the establishment

of rentals.

\(3\) Rental Increases. Ground rentals may increase

periodically, subject to the following:

a\. Rental amounts may not be increased for the first

three years of the lease term. Subsequent rental

increases may occur no more frequently than once every

12 months.

b\. Increases must be stated in the lease document in

exact dollar amounts.

c\. Establishment of future rentals by negotiation or by

formula is not permitted.

d\. Increases in any 12-month period may equal no more

than 2 percent of HUD\'s original site valuation, but

at no time may annual ground rental exceed 12 percent

of HUD\'s original site valuation.

(6-32) Example:

Value of leasehold \$57,000

Value of comparable site 9,000

Annual rental 540

(yield rate 6 percent)

Maximum permissible

Rental resulting from first

increase 720

(yield rate 8 percent)

Maximum annual rent (12%) 1,080

4\) Assignability. Leases may not contain restrictions of

assignability such as assignment by way of mortgage or

assignment to or by the Federal Housing Administration or

Department of Veterans Affairs or upon foreclosure, nor

withhold consent for assignment because of the assignee\'s

national origin, race, color or creed so long as the

leasehold is covered by an insured mortgage or a mortgage

held by the Secretary or so long as the Secretary owns the

leasehold.

5\) Option to Purchase. Subject to the exceptions listed below

the lease must permit lessee or assigns to purchase fee

simple title from lessor or assigns with 30 days written

notice. The option price of the fee simple title is

intended to reflect HUD\'s recognition of value ascribed to

the stream of income produced by the lease. Thus

underwriting instructions require the lease to permit

purchase at a price not to exceed HUD\'s original valuation

of the leased fee. Buyer and seller may agree that this

right shall not be exercised during the first five years of

the lease term.

6\) Exception to Option to Purchase. The Requirement of an

Option to Purchase may be waived in any transaction

covering the leasehold interest of the mortgagor under a

lease where:

a\. A state, including any political subdivision thereof,

of the United States, an Indian Tribe, or an Indian,

or a charitable institution, a church, a university or

(6-32) similar public purpose institution, is the lessor and

an option to purchase would not he permitted under

existing laws or regulation;

b\. Where the property is located in an area which the

Commissioner has determined that the option to

purchase is not economically feasible or acceptable

because of the custom and practices relating to land

ownership and its use.

7\) Default. Mortgagee must have the right to correct lessee\'s

defaults within 120 days from receipt of notice of intent

to terminate lease because of such default, or such further

time as may be necessary to complete foreclosure.

8\) Merger. The lease must provide that ownership of both the

fee simple title and the leasehold estate by the same owner

will not effect a merger of such estates while either

estate is encumbered by a mortgage, without the written

consent of the mortgagee.

Example: When a home situated on leased land is

purchased, the security for the mortgage includes not

only the improvement but the leasehold estate as well.

If the purchaser subsequently buys the land from the

lessor, the purchaser then acquires fee simple title

to the land. Since the mortgagee holds no interest in

the fee simple title to the land, this destroys the

mortgagee\'s security of the leasehold estate.

Therefore, the homeowner must contact the mortgagee

and obtain permission before buying the land and

effecting such a merger.

9\) Conflict. The terms of the lease must not conflict with

the terms of the mortgage.

B. Rights of Parties to the Lease. A long-term lease upon real

property creates two distinct properties:

1\) The lessor still holds title in fee simple, but since it is

encumbered by the lease which he/she has given, the

lessor\'s interest is designated the leased fee.

2\) The lessee acquires the rights to the benefits which the

use of the property will produce during the term of the

lease, if he/she does not default in the performance of

required acts of the lease. The lessee\'s interest is

designated the leasehold estate. In exchange for the

(6-32) rights, the lessee is obligated to pay a rental to the

owner of the fee and to discharge the other obligations

imposed by the lease.

[]{#__RefHeading___Toc169057601 .anchor}**6-33. APPROACH TO VALUE OF THE
LEASEHOLD ESTATE**. \<[Top](#_top)\> The value of the

property is established as though it were owned in fee simple and

unencumbered by a lease. The value of the leased fee is then

determined and deducted from the estimated value of the unencumbered

property. The resulting difference is accepted as the value of the

leasehold estate.

A. The Elements of Value in the lessor\'s rights (leased fee) are:

1\) The present value of the net rentals specified in the

lease.

2\) The value of the reversion. The reversionary right is the

right to repossess full and sole use of the property which

commences at a stated time: i.e., such as at the end of

the lease.

B. For the leasehold estate to be eligible for mortgage loan

insurance, it must involve a lease for a term of at least ten

years beyond the mortgage maturity.

1\) Commonly, long term leases provide for flat or level rental

rates which are not subject to change. However, a lease

may stipulate successive rate changes, (e.g., one fixed

rental rate for the initial 25 years, a second rental rate

for the second 25 years, etc.). This is acceptable if rate

changes appear reasonable and if they are stipulated, fixed

dollar amounts of rental for a minimum number of years

equal to the estimated remaining mortgage life of the

structure(s).

2\) Leases involving future rentals to be determined by

arbitration or negotiation, or to be related to a future

value of the land, or to its earnings are generally

difficult to appraise accurately. The indefinite amount of

the future obligation makes uncertain the continuing value

of the leasehold. Such leases are generally unacceptable

if provisions for such uncertain rentals become operative

during the remaining mortgage life of the structure.

C. Capitalization of Ground Rents. Long term leases, such as those

for 99 years, renewable, are often termed perpetual leases.

Usually renewable for a like term or successive terms, the

effect is a renewal forever, and any reversion to the fee owner

is not only improbable but so remote in time as to be of

(6-33) infinitesimal value. Ground rents accruing from such leases are

therefore treated as perpetual annuities. To evaluate the

leased fee, the ground rental is capitalized at the going market

for such investments. Ground rents under substantial buildings

having ground utility or rental value are generally well

secured, since they are primary liens, prior even to subsequent

first mortgages. Nevertheless, their use and acceptance in

residential property is limited to but a few housing market

areas. Commercial ground rents, including apartment houses are

more common although not universally used or acceptable. The

liquidity (ready marketability) of the leased fee is therefore

somewhat below that of a prime first mortgage or of the

unencumbered fee.

1\) Capitalization Rates for Ground Leases. Capitalization

rates for ground rents are usually found to vary only

between narrow limits and are not likely to be found to

deviate far from a six percent rate, net. The lessee pays

all real property taxes and assessments levied against both

land and structures. The value of the leased fee and

therefore the capitalization rate applicable will also tend

to be fixed by any rights of purchase or \"redemption\" of

the leased land granted to the lessee, either under the

terms and conditions of the lease contract, or by statute.

Thus if the lessee is granted the right to purchase the

leased fee at a fixed price in dollars or at a price

derived by capitalizing the ground rent at a stated rate,

such capital sum may well be the maximum obtainable for the

leased fee in the market from any other purchaser.

Exceptions may occur, however, as in a lease that produces

an excessive return in relation to the value of the land in

which the right of the lessee to purchase at a fixed price

is deferred by agreement or by state law.

2\) Capitalization Process. The process of capitalization of a

net rental in perpetuity merely involves division of the

yearly rental by the capitalization rate. For example, if

the ground rent is \$1,350 per year net to the lessor and it

is found that the proper capitalization rate is five

percent, the value by capitalization of the ground rent in

perpetuity is \$1,350 divided by .05, which is \$27,000. If

it is determined that the rate should be six percent, the

capitalization of the ground rent in perpetuity is \$1,350

divided by .06 which is \$22,500. Under these conditions,

there will be no reversion to the lessor; that is, the

property presumably will never revert to the lessor since

the lessee has the right to renew his lease forever.

Therefore, the total value of the leased fee in the example

quoted would be \$27,000 or \$22,500 depending upon the rate

of capitalization.

(6-33) 3) Data Files. Valuation data should he analyzed to determine

proper rates of capitalization. This will take into

account the effect upon such rates of purchase rights

granted to the lessee by the lease contract or by statute,

and the effect of deferral of such rights. If deferred for

a number of years, the effect of such rights may he

lessened.

D. APPRAISAL PROCEDURE.

1\) In appraising a property which is situated on leased land

the appraiser must first arrive at an estimate of value for

the subject property in fee simple.

2\) To accomplish this, each comparable must either be a fee

simple sale or an adjusted leasehold estate. If any of the

comparables are leasehold estates, an adjustment must be

made to each leasehold comparable by adding back the leased

fee to the sales price to arrive at the fee simple value.

This will require the appraiser to check the annual ground

rent for each leasehold comparable.

3\) When all comparables have been adjusted to reflect their

value in fee simple, the reconciled value in fee simple is

made for the subject. Then the leased fee is determined in

accordance with the annual rent divided by the

capitalization rate, and deducted from the fee simple value

to arrive at the value of the leasehold estate of the

subject property.

4\) The appraiser enters the value of the leased fee on the

back of the URAR in the COST section by lining out the

words \"ESTIMATED SITE VALUE\" and writing in \"LEASED FEE.\"

The value in fee simple is still shown below on the line

for \"INDICATED VALUE BY SALES APPROACH,\" and just below, on

the line for \"Final Reconciliation of Appraisal.\" the

appraiser should write in \"SUBJECT ON LEASED LAND WITH

ANNUAL RENT OF \$ \_\_\_\_\_\_\_\_\_\_\_capitalized at \_\_\_\_% =
\$\_\_\_\_\_

\_\_\_ Leased Fee.\" Under \"Reconciliation,\" on the line for

final estimate, the word \"Market\" should be lined out and

replaced with the word \"leasehold\" so it reads, \"I estimate

the value of the Leasehold Estate, as defined, of the

subject property. . . ,\" and the value of the Leasehold

Estate shown at the end of that line.

(6-33) E. Long Term Lease with Fixed Rent for full term of the lease.

If a lease is long-term (over 50 years) with a fixed rent for

the full term of the lease, the annual rent may be divided by

the appropriate capitalization rate to determine the value of

the leased fee. The leased fee is then deducted from the fee

simple value of the property (building and land) to arrive at

the value of the leasehold estate. The value of the leasehold

estate is HUD\'s value for mortgage insurance. Example: \$400.00

divided by 8% = 5,000.00. Fee simple \$60,000 - 5,000 = \$55,000

(value of leasehold estate).

F. Lease with Term of Less than Fifty Years with Fixed Rent.

1\) When a lease is written for a term of 50 years or less, the

possibility of the land reverting to the lessor becomes

less remote and therefore the value of the reversion must

be included in value.

2\) In this approach to value of the leased fee, the present

value Inwood Tables II, \"What \$1.00 payable periodically is

worth today\" are used. Appraisers who use computers can

easily program them to facilitate the calculations. (See

tables at pages 6-34 and 6-35).

3\) If the lease term is less than 50 years with fixed rent for

the full term of the lease, the annual rent should be

multiplied by the appropriate Inwood factors to arrive at

the leased fee. If the term is 40 years and your cap rate

is 8%, the Inwood factor is 11.925. Multiply the annual

rent by this factor. In addition to this figure, you must

add the reversionary factor which is obtained by isolating

the fortieth year from the previous 39 years - i.e. the

Inwood factor for 40 years at 8% is 11.925. From this

factor is subtracted the factor for 39 years at 8%

(11.879). The result is 11.925 - 11.879 = .046. The

present market value of the site is then multiplied by this

factor of .046 and the result added to the previous

calculation to arrive at the value of the LEASED FEE.

Example: (8%/40 years)

Rent \$450 X 11.925 = \$5,366

Site \$10,000 X .046 (reversion) = \$460

Value of leased fee (\$5,366 + 460) = \$5,826

Fee simple value of property \$50,000 - \$5,826 (leased fee)

= \$44,174 (value of leasehold estate)

(6-33) G. Valuation of the Leasehold Estate with a Term of 50 Years or

Less with One or More Fixed Rent Periods.

1\) Example: The lease is for 40 years with two fixed rent

periods. For the first 20 years the rent is scheduled at

\$360 per year. For the second 20-year fixed period, the

rent is scheduled at \$450 per year. The site has been

appraised by the appraiser at \$10,000.

2\) According to Table #2, the factor for 20 years at 6% is

11.470. The annual rent of \$360 is then multiplied by this

factor.

\$360 x 11.470 = \$4,129.00

3\) For the next 20-year fixed rent period, the factor for 40

years is taken from the Table (15.046). Since this

calculation is for the second 20 years (21 - 40), the

factor used for the first 20 years must be subtracted from

it (15.046 - 11.470) which results in a factor of 3.576.

The rent of \$450 for this fixed period is then multiplied

by this factor.

\$450 x 3.576 = \$1,609.00

4\) The value of the reversion is then calculated by taking the

factor from the Table for 40 years (15.046) and

subtracting from it the factor shown for 39 years so as to

isolate only the 40th year value which is the reversionary

factor representing the recapture of the land by the lessor

at the end of the lease term.

\$15.046 - 14.949 = .097

5\) The present day estimated market value of the land is then

multiplied by this factor to show the value of the

reversion.

\$10,000 x .097 = \$970.00

6\) The three calculations are then added together and

represent the value of the leased fee.

\$4,129 + \$1,609 + \$970 = \$6,708.00

7\) The leased fee is then subtracted from the fee simple value

of land and building which results as the value of the

leasehold estate which is the lessee\'s interest in the

property.

(6-33) H. Format for Calculation of Leased Fee.

(first period 20 years) \$360 x 11.470 = \$4,129.00

(present worth of \$1 per period)

(40-Year PW of \$1 per period = 15.046 - 11.470

First Period) = 3.576

(Second period 20 years) \$450 x 3.576

(PW of \$1 per period) = \$1,609.00

(Reversionary Value to Lessor = 40-year Present

worth of \$1 = .097)

\$10,000 (Fee Simple Value) x .097 (R. Value) = \$ 970.00

\_\_\_\_\_\_\_\_\_

Value of Leased Fee =\$ 6,708.00

Fee simple value of property =\$65,000.00

Less Value of Leased Fee =\$ 6,708.00

\_\_\_\_\_\_\_\_\_\_

Value of Leasehold Estate =\$58,292.00

I. Subleasehold Estates. Because a subleasehold mortgage is

inherently riskier for a mortgagee and mortgage insurer than an

ordinary leasehold mortgage, the Department prohibits the

acceptance of subleasehold estates for mortgage insurance. In

an assignment, the lessee conveys its entire interest under the

lease with respect to all or a portion of the leased property,

whereas in a sublease the lessee retains some interest as

against the sublessee. Subleasehold estates exist when the

mortgagor holds an interest in the property only through a

sublease from a lessee, rather than through a lease or deed from

a fee owner or an assignment of lease from a lessee. If the

lessee\'s rights in the property are terminated, such as for the

breach of the lease convenants, all of the sublessee\'s rights

are also terminated absent a separate agreement between the fee

owner and the sublessee. That would leave a mortgagee without

any security under the mortgage.

K. Lease Forms and their Approval.

Any ground lease form which does not meet the foregoing

standards, should not be accepted without Headquarters

approval.

TABLE II: PRESENT WORTH OF ONE PER PERIOD

What \$1 payable periodically is worth today.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Years Speculative Interest Rates

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3% 4% 4-1/2% 5%

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

1 0.971 0.961 0.957 0.952

2 1.913 1.886 1.873 1.859

3 2.829 2.775 2.749 2.723

4 3.717 3.630 3.587 3.546

5 4.580 4.452 4.390 4.329

6 5.417 5.242 5.158 5.076

7 6.230 6.002 5.893 5.786

8 7.020 6.733 6.596 6.463

9 7.786 7.435 7.269 7.108

10 8.530 8.111 7.913 7.722

11 9.253 8.760 8.529 8.306

12 9.954 9.385 9.118 8.863

13 10.635 9.986 9.683 9.394

14 11.296 10.563 10.223 9.899

15 11.938 11.118 10.739 10.380

16 12.561 11.652 11.234 10.838

17 13.166 12.166 11.707 11.274

18 13.753 12.659 12.160 11.690

19 14.324 13.134 12.593 12.085

20 14.877 13.590 13.008 12.462

21 15.415 14.029 13.405 12.821

22 15.937 14.451 13.784 13.163

23 16.444 14.857 14.148 13.489

24 16.935 15.247 14.495 13.799

25 17.413 15.622 14.828 14.094

26 17.877 15.983 15.147 14.375

27 18.327 16.330 15.451 14.643

28 18.764 16.663 15.743 14.898

29 19.188 16.984 16.022 15.141

30 19.600 17.292 16.289 15.372

31 20.000 17.588 16.544 15.593

32 20.389 17.874 16.789 15.803

33 20.766 18.148 17.023 16.002

34 21.132 18.411 17.247 16.193

35 21.487 18.665 17.461 16.374

TABLE II: PRESENT WORTH OF ONE PER PERIOD

What \$1 payable periodically is worth today.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Years Speculative Interest Rates

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3% 4% 4-1/2% 5%

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

36 21.832 18.908 17.666 16.547

37 22.167 19.143 17.862 16.711

38 22.492 19.368 18.050 16.868

39 22.808 19.584 18.230 17.017

40 23.115 19.793 18.401 17.159

41 23.412 19.993 18.566 17.294

42 23.701 20.186 18.724 17.423

43 23.982 20.371 18.874 17.546

44 24.254 20.549 19.018 17.663

45 24.519 20.720 19.156 17.774

46 24.775 20.885 19.288 17.880

47 25.025 21.043 19.415 17.981

48 25.267 21.195 19.536 18.077

49 25.502 21.341 19.651 18.169

50 25.730 21.482 19.762 18.256

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Equal annual amounts; payable at end of year.

TABLE II: PRESENT WORTH OF ONE PER PERIOD

What \$1 payable periodically is worth today.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Years Speculative Interest Rates

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5-1/2% 6% 6-1/2% 7%

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

1 0.948 0.943 0.939 0.935

2 1.846 1.833 1.821 1.808

3 2.698 2.673 2.648 2.624

4 3.505 3.465 3.426 3.387

5 4.270 4.212 4.156 4.100

6 4.996 4.917 4.841 4.766

7 5.683 5.582 5.485 5.389

8 6.334 6.210 6.089 5.971

9 6.952 6.802 6.656 6.515

10 7.538 7.360 7.189 7.024

11 8.093 7.887 7.689 7.499

12 8.618 8.384 8.159 7.943

13 9.117 8.853 8.600 8.358

14 9.590 9.295 9.014 8.745

15 10.038 9.712 9.403 9.108

16 10.462 10.106 9.768 9.447

17 10.865 10.477 10.110 9.763

18 11.246 10.828 10.432 10.059

19 11.608 11.158 10.735 10.306

20 11.950 11.470 11.019 10.594

21 12.275 11.764 11.285 10.835

22 12.583 12.042 11.535 11.061

23 12.875 12.303 11.770 11.272

24 13.152 12.550 11.991 11.469

25 13.414 12.783 12.198 11.654

26 13.662 13.003 12.392 11.826

27 13.898 13.210 12.575 11.987

28 14.121 13.406 12.746 12.137

29 14.333 13.591 12.907 12.278

30 14.534 13.765 13.059 12.409

31 14.724 13.929 13.201 12.532

32 14.904 14.084 13.334 12.647

33 15.075 14.230 13.459 12.754

34 15.237 14.368 13.577 12.854

35 15.390 14.498 13.687 12.948

TABLE II: PRESENT WORTH OF ONE PER PERIOD

What \$1 payable periodically is worth today.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Years Speculative Interest Rates

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5-1/2% 6% 6-1/2% 7%

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

36 15.536 14.621 13.791 13.035

37 15.674 14.737 13.888 13.117

38 15.805 14.846 13.979 13.193

39 15.929 14.949 14.065 13.265

40 16.046 15.046 14.145 13.332

41 16.157 15.138 14.221 13.394

42 16.263 15.224 14.292 13.452

43 16.363 15.306 14.359 13.507

44 16.458 15.383 14.421 13.558

45 16.548 15.456 14.480 13.605

46 16.633 15.524 14.535 13.650

47 16.714 15.589 14.587 13.692

48 16.790 15.650 14.636 13.730

49 16.863 15.708 14.682 13.767

50 16.931 15.762 14.724 13.801

Equal annual amounts; payable at end of year.

TABLE II (continued)

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Years Speculative Interest Rates

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

7-1/2% 8% 9% 10%

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

1 0.930 0.926 0.917 0.909

2 1.796 1.783 1.759 1.736

3 2.600 2.577 2.531 2.487

4 3.349 3.312 3.240 3.170

5 4.046 3.993 3.890 3.791

6 4.694 4.623 4.486 4.355

7 5.297 5.206 5.033 4.868

8 5.857 5.747 5.535 5.335

9 6.379 6.247 5.995 5.759

10 6.864 6.710 6.418 6.145

11 7.315 7.139 6.805 6.495

12 7.735 7.536 7.161 6.814

13 8.126 7.904 7.487 7.103

14 8.489 8.244 7.786 7.367

15 8.827 8.559 8.061 7.606

16 9.142 8.851 8.313 7.824

17 9.434 9.122 8.544 8.022

18 9.706 9.372 8.756 8.201

19 9.959 9.604 8.950 8.365

20 10.194 9.818 9.128 8.514

21 10.413 10.017 9.292 8.649

22 10.617 10.201 9.442 8.772

23 10.807 10.371 9.580 8.883

24 10.983 10.529 9.707 8.985

25 11.147 10.675 9.823 9.077

26 11.299 10.810 9.929 9.161

27 11.441 10.935 10.026 9.237

28 11.573 11.051 10.116 9.307

29 11.696 11.158 10.198 9.370

30 11.810 11.258 10.274 9.427

31 11.917 11.350 10.343 9.479

32 12.015 11.435 10.406 9.526

33 12.107 11.514 10.464 9.569

34 12.193 11.587 10.518 9.609

35 12.272 11.655 10.567 9.644

TABLE II (continued)

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Years Speculative Interest Rates

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

7-1/2% 8% 9% 10%

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

36 12.347 11.717 10.612 9.676

37 12.415 11.775 10.653 9.706

38 12.479 11.829 10.691 9.733

39 12.539 11.879 10.726 9.757

40 12.594 11.925 10.757 9.779

41 12.646 11.967 10.786 9.799

42 12.694 12.007 10.813 9.817

43 12.738 12.043 10.838 9.834

44 12.780 12.077 10.861 9.849

45 12.819 12.108 10.881 9.863

46 12.855 12.137 10.900 9.875

47 12.888 12.164 10.918 9.887

48 12.919 12.189 10.933 9.897

49 12.948 12.212 10.948 9.906

50 12.975 12.233 10.962 9.915

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Equal annual amounts; payable at end of year.

TABLE II (continued)

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Years Speculative Interest Rates

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

11% 12% 13% 14%

1 0.901 0.893 0.885 0.877

2 1.713 1.690 1.668 1.647

3 2.444 2.402 2.361 2.322

4 3.102 3.037 2.974 2.914

5 3.696 3.605 3.517 3.433

6 4.231 4.111 3.998 3.889

7 4.712 4.564 4.423 4.288

8 5.146 4.968 4.799 4.639

9 5.537 5.328 5.132 4.946

10 5.889 5.650 5.426 5.216

11 6.206 5.938 5.687 5.453

12 6.492 6.194 5.918 5.660

13 6.750 6.424 6.122 5.842

14 6.982 6.628 6.302 6.002

15 7.191 6.811 6.462 6.142

16 7.379 6.974 6.604 6.265

17 7.549 7.120 6.729 6.373

18 7.702 7.250 6.840 6.467

19 7.839 7.366 6.938 6.550

20 7.963 7.469 7.025 6.623

21 8.075 7.562 7.102 6.687

22 8.176 7.645 7.170 6.743

23 8.266 7.718 7.230 6.792

24 8.348 7.784 7.283 6.835

25 8.422 7.843 7.330 6.873

26 8.488 7.896 7.372 6.906

27 8.548 7.943 7.409 6.935

28 8.602 7.984 7.441 6.961

29 8.650 8.022 7.470 6.983

30 8.694 8.055 7.496 7.003

31 8.733 8.085 7.518 7.020

32 8.769 8.112 7.538 7.035

33 8.801 8.135 7.556 7.048

34 8.829 8.157 7.572 7.060

35 8.855 8.176 7.586 7.070

TABLE II (continued)

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Years Speculative Interest Rates

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

11% 12% 13% 14%

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

36 8.879 8.193 7.598 7.079

37 8.900 8.207 7.609 7.087

38 8.919 8.221 7.618 7.094

39 8.936 8.233 7.627 7.100

40 8.951 8.244 7.634 7.105

41 8.965 8.253 7.641 7.110

42 8.977 8.262 7.647 7.114

43 8.989 8.270 7.652 7.117

44 8.999 8.276 7.657 7.120

45 9.008 8.283 7.661 7.123

46 9.016 8.288 7.664 7.126

47 9.024 8.293 7.668 7.128

48 9.030 8.297 7.670 7.130

49 9.036 8.301 7.673 7.131

50 9.042 8.305 7.675 7.133

Equal annual amounts; payable at end of year.

# CHAPTER 8. UNIFORM RESIDENTIAL APPRAISAL REPORT

[]{#__RefHeading___Toc169057603 .anchor}**8-1. GENERAL**.
\<[Top](#_top)\> All appraisals must be completed on the Uniform
Residential

Appraisal Report (URAR) which is a common form required by the

Department of Housing and Urban Development, the Department of

Veterans Affairs, the Federal National Mortgage Association, the

Federal Home Loan Mortgage Corporation and others.

A. The URAR is formatted and sized to accommodate computer generated

appraisal reporting. The format (10 characters to the inch

horizontal spacing) compliments the use of word processors,

dot matrix, letter quality and laser jet printers as well as

traditional typewriters. It may also be obtained with 12

characters per inch. The form must be completed with ball point

pen, typewritten or computer generated.

B. HUD does not furnish the URAR to lenders. Lenders must purchase

the URAR from private sources and furnish it at no cost to the

appraiser, when the lender requests an appraisal.

C. There are parts of the URAR which HUD does not require, such as

cost and depreciation for an older existing home or the income

approach for a one or two unit owner-occupied home. However,

there may be some lenders, including Direct Endorsement (D.E.)

mortgagees, who may require completion of these parts for

possible conventional loan purposes. In such cases, the URAR

should be completed in its entirety, but mortgagees must make

such arrangements directly with the appraiser and pay any

required additional amount. When the lender requests that the

entire URAR be completed, the additional expense involved cannot

be charged to the buyer. The additional expense must be borne by

some other party (i.e., the seller, mortgagee, etc.).

D. In addition to the URAR, the appraiser must prepare the Valuation

Condition Sheet when necessary for correction of any obvious

deficiencies which could have an adverse effect on the health or

safety of the occupants or the continued marketability of the

property. This form is prepared and distributed by each HUD

Field Office.

The Condition Sheet shall contain space for the property address,

the case number and the site of the appraisal. The valuation

conditions shall be coded using a VC sequence (i.e., VC-1, VC-2,

VC-3, etc.). The valuation condition sheet shall be completed in

triplicate with the original and a copy being attached to the

URAR and sent to the mortgagee and a copy remaining with the case

binder.

[]{#__RefHeading___Toc169057604 .anchor}**8-2. INSPECTION OF PROPERTY**.
\<[Top](#_top)\>

A. Appraisers must present their HUD I.D. card and conduct

themselves in a courteous and professional manner. The estimate

of value must not be discussed with the owner, real estate agent

or anyone other than HUD or a Direct Endorsement mortgagee\'s

underwriter.

B. The Appraiser is required to make a complete personal visual

inspection of the subject property and all comparables used in

the appraisal report. The inspection of the subject property

must include the exterior and interior of the building.

C. The basement must be examined for dampness or wetness, any

obvious structural problems and the condition of the furnace,

hot water heater or other components located there. The

Appraiser must turn on the furnace and air conditioner, if one

exists, to assure it is working and check the hot water heater.

The appraiser must be especially careful in checking the

operation of equipment where a property shows evidence of

neglect or vandalism. If the appraiser cannot determine whether

all mechanical equipment is in operating condition, the

appraiser should make a commitment requirement for reinspection

or that the mortgagee furnish evidence satisfactory that certain

mechanical equipment is in operating condition at the time of

loan closing.

D. A crawl space must be examined for dampness or trash, vapor

barrier, distance from floor joists to ground, adequate

ventilation and any obvious structural problems. The appraiser

should note in the appraisal report when the distance from the

floor joists to the ground is less than 18 inches. The local

HUD Office may require a minimum distance from the ground to the

floor joists for the property to be acceptable.

E. The attic must be inspected whether access is by pull-down

stairway or scuttle, for signs of deficient roof covering,

possible structural problems, insulation, and adequate

ventilation. Although insulation is not a requirement, in many

sections of the country the lack of insulation would seriously

affect the marketability of the property.

F. The Appraiser must also walk around the site to assure that

there is proper drainage away from the house, that there is no

obvious wood-boring insect infestation or potential for such and

that there is sufficient distance from an adjoining property for

the maintenance of the sides of the subject property. If the

subject property has a septic system the Appraiser must inspect

for any signs of failure such as odor or surface puddling. If

municipal sewage service is available, connection to such

service must be made, if feasible.

(8-2) G. Deficiencies must he given proper consideration in establishing

the estimated market value of the property. An estimate of the

cost of the required repairs, alterations or additions is made

by the Appraiser, or by the Architectural or Cost Section when

requested. If conditions prevent complete inspection of the

property at the time of appraisal (for example, snow covering

the roof) so that the Appraiser cannot determine the condition,

either a reinspection prior to closing or satisfactory evidence

must be furnished concerning the condition of those items cited

in the requirement.

H. The Appraiser is required to take a picture of the front and

rear of the subject property from oblique angles so as to

include the sides as well as the front and rear of the property

and all buildings on the subject property having contributory

value. The appraiser must also take a frontal picture of each

comparable used in the report; having someone else take the

pictures is not acceptable. In addition, the appraiser is

required to provide a copy of a local street map showing the

subject and each comparable.

Exception: There may be a case in a rural area in which an

Appraiser wishes to use a comparable that had been used in a

previous case, but the picture was taken with a Polaroid camera

and there is no negative from which to reproduce the picture.

In such cases, if the comparable is a great distance away, the

Field Office may waive the requirement for a picture of that

comparable, provided that the Appraiser cites the previous case

number in which that comparable had been used and a picture

provided. This authority is to be used only in rural areas

where it is a great distance to the comparable.

I. The Appraiser who performed the appraisal and made the

inspection must personally sign the appraisal report.

J. For newly constructed properties, see HUD Handbook 4145.1.

[]{#__RefHeading___Toc169057605 .anchor}**8-3. INSTRUCTIONS FOR
COMPLETING THE UNIFORM RESIDENTIAL APPRAISAL REPORT (URAR)**.
\<[Top](#_top)\> All appraisal reports must be prepared with ball point
pen,

typed or computer generated.

A. FHA Case Number: To be inserted at top right after \"File No.\"

B. Subject: To be filled in by the appraiser except for the box at

right \"Lender Discretionary Use\" which is to be completed by the

Field Office or Direct Endorsement lender\'s underwriter after

the purchaser has been approved and the case is ready for

closing.

C. Neighborhood: Location: In addition to checking boxes

in\"predominant occupancy,\" show percentage occupied. When boxes

(8-3) \"urban\" and \"declining\" are both checked, the appraiser should

consider making a recommendation that the mortgage encumbering

the property be insured pursuant to Section 223(e).

D. Neighborhood Analysis: Mark the most appropriate rating for

each item.

1\) G - GOOD: The item or characteristic in the subject

neighborhood is superior to the same

characteristic found in a competing

neighborhood.

2\) A - AVERAGE: The item or characteristic is equal to the

same characteristic found in a competing

neighborhood.

3\) F - FAIR: The item or characteristic is inferior to the

same characteristic found in a competing

neighborhood.

4\) P - POOR: The item or characteristic is in small supply

or does not exist in the subject neighborhood

but is found in a competing neighborhood.

E. Site.

1\) Dimensions: List all dimensions of the site. If irregular,

the appraiser should show boundary dimensions, such as: 85\'

x 150\' x 195\' x 250\'.

2\) Site Area: Enter area in square feet or acres.

3\) Corner Lot: Enter \"Yes\" or \"No.\"

4\) Zoning Classification: Enter the zoning type used by the

local municipality to describe the type of use permitted.

Do not use abbreviations such as \"R1\" or \"A1\" by themselves.

The abbreviated descriptions can vary among communities.

For example: \"residential - single family,\" \"residential

\- 1-4 family.\"

a\. Can use \"Historic,\" if applicable.

b\. If a nonconforming use exists, enter \"nonconforming\"

and state whether it is a legal use which has been

approved by the local zoning authority. Be sure to

determine if current use is in compliance. If not, the

property should be rejected.

(8-3) 5) Zoning Compliance: Enter \"Yes\" or \"No/legal nonconforming

use.\" A nonconforming use could require an Addendum for

further explanation. But if the use is not legal, it is not

eligible for HUD mortgage insurance.

6\) Highest and Best Use: This entry represents the highest and

best use of the site in relation to the neighborhood. If

present use represents the highest and best use, enter

\"Yes.\" If it does not, enter \"No\" and explain in the

\"Comments\" section.

7\) Other Use: If the present use is not the highest and best

use of the site, enter the use that should exist and explain

in the \"Comments\" section.

8\) Utilities: Either check a box or explain under \"Other.\"

Public utilities are provided by a government. \"Other\" can

reflect individual and/or community systems. Show if

electricity is underground.

9\) Site Improvements: Describe by entering a brief description

under \"Type\" and checking whether Public or Private. For

example: \"Street - Asphalt; Public.\" It is important to

identify if year-round maintenance exists. \"Public\" refers

to a government which can regulate use. It does not include

a homeowners association.

10\) Topography: Enter whether level, sloped, etc.

11\) Size: Enter descriptions such as \"typical,\" \"small,\" or

\"large.\"

12\) Shape: Enter site configuration, such as \"triangular,\"

\"square,\" or \"rectangular.\"

13\) Drainage: Enter whether adequate or inadequate. If

inadequate, be sure to explain and make requirements for

correction, if feasible.

14\) View: Describe briefly the view from the property.

Identify a view having a significant positive or negative

influence on the value, for example:

\"mountains\" - (and enter \"average,\"

\"superior\" or \"inferior\" as contrasted

with other local sites)

\"ocean\"

(8-3) \"expressway\"

15\) Landscaping: Enter whether adequate or inadequate

relative to neighborhood.

16\) Driveway: Enter type such as concrete, asphalt or gravel.

17\) Apparent Easement: If there appears to be an easement,

check to make sure.

18\) FEMA Flood Hazard: FEMA is the Federal Emergency Management

Agency, which is responsible for mapping flood hazard areas.

If any part of the property is inside a Special Flood Hazard

area, check \"Yes.\" Otherwise check \"No.\"

19\) FEMA Map/Zone: Regardless of your previous answer, enter

map number and zone. If it is not shown on any map, enter

\"not on FEMA maps.\" Only those properties within zones \"A\"

and \"V\" require flood insurance. Zones \"B\" and \"C\" do not

require flood insurance because FEMA designates only \"A\"

and \"V\" zones as \"Special Flood Hazard Areas.\"

F. Improvements.

1\) General Description.

a\. Units: Enter number of units being valued. The URAR

is designed for 1-4 units.

b\. Stories: Enter the number of stories above grade not

including the basement.

c\. Type: Enter \"Det.\" (Detached), \"S/D\" (Semi-detached)

or R\" (Row).

d\. Design (Style): Enter brief description using local

custom terminology. For example: Cape Cod, bi-level,

split level, split foyer, town-house, etc. Do not use

builder\'s model name.

e\. Existing: Enter \"Yes\" or \"No.\"

f\. Proposed: Enter \"Yes\" or \"No.\"

g\. Under Construction: Enter \"Yes\" or \"No.\" A \"Yes\"

requires plans and specs for the appraiser to review.

If REHAB enter \"REHAB\" instead of \"Yes\" or \"No.\"

(8-3) h. Age (Yrs.): Enter actual age. Construction records

may be helpful if available. Insert both the month and

year completed where the property is less than two

years old. If it is over two years old, insert the

year completed only.

i\. Effective Age (Yrs.): Enter effective age, if

appropriate. This is judgmental. May want to report a

range.

A difference between actual and effective age typically

is caused by a level of maintenance or remodeling which

may be below or above average. Significant differences

between the actual and effective ages should be noted.

2\) Exterior Description.

a\. Foundation: Enter type of construction such as poured

concrete, concrete block or wood.

b\. Exterior Walls: Enter type of construction material

such as aluminum, wood siding, brick veneer, porcelain,

log or stucco. If combination show predominant portion

first.

c\. Roof Surface: Enter type such as composition, wood,

slate, tile.

d\. Gutters and Downspouts: Enter type such as galvanized,

aluminum, wood, plastic. If partial, state location.

e\. Window Type. Describe type such as double-hung,

casement, sliding. Identify the construction type such

as aluminum, wood, or vinyl.

f\. Storm Sash: Describe combination or style.

g\. Screens: Enter\"Yes\" or \"No.\" If partial, state

location.

h\. Manufactured Housing: Enter either manufactured home

(MH) or modular (MOD), or answer \"no\" if not

manufactured or modular home.

3\) Foundation.

a\. Slab \_\_\_\_\_ Enter \"Yes\" or \"No.\"

b\. Crawl Space \_\_\_\_\_ Enter \"Yes\" or \"No.\" If partial,

include percentage of floor area.

(8-3) c. Basement \_\_\_\_\_Enter \"Full,\" \"Partial,\" or \"None.\"

d\. Sump Pump \_\_\_\_\_Enter \"Yes\" or \"No.\"

e\. Dampness \_\_\_\_\_Enter \"Yes\" or \"No.\"

f\. Settlement \_\_\_\_\_Enter \"Yes\" or \"No.\" (Check for

cracks.)

g\. Infestation \_\_\_\_\_Enter \"Yes\" or \"None Apparent.\" Look

for all types of insects and damage. If there is any

question, require termite inspection.

4\) Basement.

a\. Area Sq. Ft. \_\_\_\_\_ Enter square feet.

b\. % Finished \_\_\_\_\_ Enter percentage of basement square

footage (figure above) that is

finished.

c\. Ceiling \_\_\_\_\_ Enter material type such as d/w for

drywall, or lath and plaster, or

celotex ceiling panels.

d\. Walls \_\_\_\_\_ Enter material type such as d/w for

drywall or wood panel or cinder

block.

e\. Floor \_\_\_\_\_ Enter floor type, such as asph.

tile or concrete. Comment if any

part is dirt.

f\. Outside Entry \_\_\_\_ Enter \"Yes\" or \"No.\" If \"Yes,\"

enter type.

5\) Insulation.

a\. Roof Make every effort to determine the

type.

b\. Ceiling Enter R-Factor or show depth and

location. If the existence of

insulation cannot be determined,

c\. Walls enter \"Unknown.\" Do not guess.

d\. Floor

e\. None

f\. Adequacy Enter in each blank line one of the

following:

(8-3) G = Good

A = Average

F = Fair

P = Poor

U = Undetermined

(8-3) Enter a x or leave box blank to

denote the existence of insulation

if the feature was verified. For

example:

\"Walls A x .\" which means

that wall insulation was verified

and judged to be average.

g\. Energy Efficient Identify any special

Items: energy-efficient items such as extra

insulation, design of home, solar,

earth sheltered, attic vents, heat

pump.

G. Room List.

1\) Questions concerning room design and count should reflect

local custom.

2\) Typically, a room totally underground is not as valuable as

one above ground.

3\) Typically, the foyer, bath, and laundry room are not counted

as rooms. A room is a livable area with a specific use.

4\) A dining area built as an L-shape off the kitchen may or may

not be a room depending upon the size. A simple test which

may be used to determine whether one or two rooms should be

counted is to hypothetically insert a wall to separate the

two areas which have been built as one. If the residents

can utilize the resulting two rooms with the same or more

utility and without increased inconvenience, the room count

should be two. If the existence of the hypothetical wall

would result in a lack of utility and increased

inconvenience, the room count should be one.

5\) The room count typically includes a living room (LR), dining

room (DR), kitchen (KT), den (DN), recreation room (REC),

and bedroom (BR).

6\) The following definitions and terms may be useful as a

guide:

(8-3) a. Basement: Generally completely below the grade. This

is NOT counted in the finished gross living area at the

grade level.

b\. Level 1: Includes all finished living area at grade

level.

c\. Level 2: Includes all finished areas above the first

level.

d\. Foyer: Entrance hall of a house.

7\) In completing this section, enter the number of each room

type on each level. DO NOT enter the dimensions.

a\. Area Sq. Ft.: Calculate the overall square footage of

each level from the exterior dimensions.

b\. Square Foot of Gross Enter total square

Living Area: footage above grade.

H. Interior:

1\) Surfaces Materials/ Make every effort to

Conditions describe accurately.

a\. Floors \_\_\_\_\_ Enter type such as tile,

hardwood or carpet.

b\. Walls \_\_\_\_\_ Enter type such as plaster,

drywall or paneled.

c\. Trim/Finish \_\_\_\_\_ Enter type of molding such as

wood, metal or vinyl.

Bath Floor \_\_\_\_\_ Enter ceramic, vinyl tile, or

carpet.

d\. Bath Wainscot \_\_\_\_\_ Enter type that protects

walls from moisture, such as

ceramic tile or fiberglass.

e\. Doors \_\_\_\_\_ Enter wood or steel.

f\. Fireplace(s) \_\_\_\_\_ Enter type such as

#\_\_\_\_\_ brick or steel free standing.

Enter the number of

fireplaces.

(8-3) 2) Heating.

a\. Type \_\_\_\_\_ Enter type: hot water, steam,

forced warm air, gravity warm air, radiant.

b\. Fuel \_\_\_\_\_ Enter fuel: Coal, gas, oil,

electric.

c\. Condition \_\_\_\_\_ Enter condition: \"Good,\"

\"Average,\" \"Fair,\" or \"Poor.\" Be sure to explain

\"Fair\" or \"Poor\" rating.

d\. Adequacy \_\_\_\_\_ Describe adequacy: Does

system heat the house well?

Use \"Good,\" \"Average,\"

\"Fair,\" or \"Poor.\" Explain a

\"Fair\" or \"Poor\" rating.

3\) Cooling.

a\. Central \_\_\_\_\_ Enter \"Yes\" or \"No.\"

b\. Other \_\_\_\_\_ Describe.

c\. Condition \_\_\_\_\_ Describe as with Heating.

d\. Adequacy \_\_\_\_\_ Describe as with Heating.

4\) Kitchen Equipment. Make an entry in the boxes to indicate

that these items exist. An entry in a box means that these

items were seen and they are fixtures. An item that was

seen but is personal property should have a \"P\" in the box

and not be included in value.

5\) Attic. Additional space such as an attic or room above the

garage should be described in the manner in which it can be

actually used. The essential question is whether it can he

included in the above-grade living area.

I. Improvement Analysis.

1\) Quality of Construction. Look for quality and durability.

2\) Condition of Improvements. Look for physical deterioration.

If the value is subject to completion of repairs and

alterations, rate the property after completion. An example

could be a property which is observed to be \"fair\" but the

appraisal is subject to repairs being completed which could

(8-3) warrant a \"good\" rating. The rating \"good\" is then

appropriate. Also, an appraisal on property being

constructed would be rated as though finished.

3\) Room Sizes/Layout. While a property might be \"average\" it

still may suffer from functional obsolescence. The

particular feature in question may exist in all of the

comparables selected, in which case all would be classified

as \"average.\"

4\) Energy Efficient. Relative to local standards.

5\) Plumbing- Adequacy and Condition. Look for style and

condition of fixtures. Include comments concerning

condition of septic system if applicable.

6\) Electrical - Adequacy and Condition. Relative to local

standards.

7\) Estimated Remaining Economic Life. Enter the number of

years the property is expected to remain competitive in the

market. You should use 40 years unless an obvious and

verifiable pressure exists which can be conclusively shown

to render the remaining economic life to be less than 40

years.

\(8\) Estimated Remaining Physical Life. To be used only in cases

where the property is located in a 223(e) area in which the

economic life is waived and physical life is used instead.

J. Autos.

1\) Car Storage: Complete this entire block if the property has

a garage or carport. If it has neither a garage nor a

carport, check None under Car Storage and leave the rest of

this block blank.

a\. No. Cars: Provide the number of cars that may

reasonably be parked in the property\'s garage or

carport.

b\. Condition: Rate as either \"good\" \"average\", \"fair\", or

\"Poor\". If you rate the condition of the garage or

carport as \"fair\" or poor\", you should explain your

reasons in the Comments block or in a separate

addendum.

c\. Garage: Check this box if the property has a garage.

(8-3) d. Carport: Check this box if the property has a carport.

e\. Attached: Check this box if the garage or carport is

attached (one or two common walls) to the house.

f\. Detached: Check this box if the garage or carport is

not attached to the house.

g\. Built-In: Check this box if the garage or carport is

built into the house (one or two common walls and the

garage ceiling is the floor of another part of the

house).

h\. Adequate: Check this box if the garage or carport is

adequate. Again, this is a judgment call by the

appraiser, and an \"adequate\" rating in one neighborhood

may differ from an \"adequate\" rating in another

neighborhood.

i\. Inadequate: Check this box if the garage or carport is

inadequate and describe its shortcomings in the

Comments block.

j\. Electric Door: Check this box if the garage has an

electric door opener and test. If it does not operate

properly, the box marked \"inadequate\" should be checked

and a requirement made to repair it in the

\"depreciation\" section of the \"comments\" box.

k\. House Entry: Check this box if the house can be

entered directly from the garage or carport without

having to go outside or through the basement.

Otherwise, leave this box blank.

l\. Outside Entry: Check this box if a person must leave

the shelter of the carport or garage to enter the

house. Otherwise, leave this box blank.

m\. Basement Entry: Check this box if the basement may be

entered from the garage or carport. Leave this box

blank if there is no entry to the basement from the

garage or carport.

K. Comments.

1\) Additional Features. Enter here any additional features

such as a pool, special fireplace features or other features

not shown above or any comments you may wish to make.

2\) Depreciation Comments. Enter repairs needed, maintenance,

etc.

3\) General Market Conditions. Financing concessions for the

subject and the market area should be explained. Be sure to

explain whether the subject is consistent with the market

area or different.

BACK PAGE OF URAR

L. Building Sketch (Show Gross Living Area Above Grade). Sketch

should include all exterior dimensions of house as well as

patios, porches, garages, breezeways and other offsets. State

\"covered\" or \"uncovered\" to indicate a roof or no roof such as

over a patio.

M. Cost Approach. The estimated reproduction cost of improvements,

need not be completed for existing construction; however, the

estimated value of the site must be entered. If the subject

property is proposed construction or existing construction under

one year of age, the Marshall and Swift Form 1007 is to be

completed and attached and the box is to be completed using the

figures from Marshall and Swift calculations. (See Chapter 6

for required attachments.)

N. Does Property Conform to Applicable Minimum HUD/VA Standards?

1\) This question refers not only to minimum property standards

as set forth in Handbook 4905.1, but also to HUD Handbook

4910.1, appendix K (24CFR 200.926d) for new construction and

to hazards of lead based paint. If the property was built

prior to 1978 and there is no evidence of cracking,

chipping, peeling or loose paint, then, the question may be

answered \"Yes.\" However, if such a deficiency exists, the

question must be answered \"No\" and under explanation state

\"property built prior to 1978. Lead based paint abatement

required.\" In addition, the appraiser must check the lead

based paint abatement requirement on the VC sheet.

2\) Construction Warranty. Determine if property will be

covered by a construction warranty such as HOW, HBW, or

other HUD-approved ten year warranty and enter information.

(8-3) Check \"Yes\" box only if warranty plan is HUD-approved. A

list of HUD-approved warranty plans may be found in HUD

Handbook 4145.1.

O. Sales Comparison Analyis.

1\) Selection of Comparables. In selecting comparables, the

bracketing method must be used. Ideally, one of the

comparables should be a little larger (200 sq. ft. to

300 sq. ft.), another a little smaller, and the third should

be approximately the same size (within a hundred square feet

of the subject). DO NOT SELECT COMPARABLES BY SALES PRICE.

All adjustments must be extracted from the market. No

adjustment should be made unless it has a material effect on

value. When an adjustment is made for location, site/view

or Design and Appeal, the appraiser must explain the reason

to the reviewer. Avoid using three builder sales from the

same subdivision if possible.

2\) Address. Enter address that can be used to locate each

property. Enter community, if needed to identify property.

For rural properties, list location by road name, nearest

intersection, and side road.

3\) Proximity to Subject. Enter proximity in straight line

distance, like \"3 houses or one tenth of a mile W subject.\"

If comparable is more than 1 mile from subject, be sure to

explain in the \"Comments\" section.

4\) Sales Price. Enter total paid by buyer, including extras.

5\) Price/Gross Living Area. Enter price per square foot for

living-area above grade.

6\) Data Source. Enter source name, or others such as tax

stamps, MLS, etc. This is the data source for the price and

property information. Also show type of financing such as

Conv., FHA or VA.

7\) Sales or Financing Concessions. Enter adjustment for sales

concessions, if needed. Be sure to explain in \"Comments

section and use Addendum if appropriate.

a\. In some areas of the country it is customary for the

builder or seller to pay closing costs for the buyer

and include them in the sales price of the property.

In other areas it may occur occasionally or not at all.

In those rare instances in which there is a market area

where closing costs are the responsibility of the

(8-3) seller and are always paid by the seller and included

in the sales price, the appraiser must note under

\"Comments and Conditions of Appraisal,\" on the back of

the URAR, that the reconciled value represents a market

value which includes closing costs. The review

appraiser or Direct Endorsement Underwriter noting this

comment, must then show on the form HUD 92800.5b,

Conditional Commitment/Statement of Appraised Value, a

zero figure for closing costs and calculate the maximum

mortgage amount on only the reconciled value arrived at

by the appraiser.

b\. Sales that are not verified and adjusted to reflect the

terms and conditions of sale should not be used as

market data.

c\. Always select the comparables with the fewest

dissimilarities. Use older sales only if more recent

ones are not available and be sure to explain in the

\"Comments\" section. Any comparable over six months old

is not considered current.

d\. Section 235 and property disposition sales are not

considered typical transactions as they do not reflect

market value under normal buyer-seller relationships.

Therefore, they are not to be used as comparables in

finding value.

The value factor of Location, Site/View, Design and

Appeal, Quality of Construction, Age, Condition, and

Functional Utility are all subjective factors that

require subjective adjustments. Be careful that your

adjustments are reasonable\--not excessive. If a

property is ever overvalued, a high probability exists

that the reason can be traced to an excessive

adjustment somewhere in this section. Adjustments

should be made only in cases where the dissimilarity

has a noticeable effect on value. Small differences do

not usually require adjustments.

8\) Date of Sale/Time. Enter month and year. This date refers

to a date of sale. A specific day is not necessary unless

it is meaningful, such as in a rapidly changing market.

9\) Location. Enter \"Good,\" \"Average,\" or \"Fair,\" when compared

to the subject and using the same standard as the subject.

An adjustment for location in the same neighborhood is

seldom justified.

(8-3) 10) Site/View. Enter size of lot and explain view if

appropriate. Adjustments come from a view which has been

rated as \"Superior\" or \"Inferior\" to the subject as well as

size of lot. Small differences in lot sizes do not usually

call for an adjustment if the size is typical.

11\) Design and Appeal. Enter the style according to a

description used by local custom and show appeal as G-A-F-P.

12\) Quality of Construction. Enter \"Good,\" \"Average,\" or \"Fair\"

and the construction type such as aluminum siding, wood

siding, brick, etc.

13\) Age. If both actual and effective age are used, enter both

such as \"A-25, E-20.\" A difference typically is caused by

modernization or significant maintenance, or the lack of

either. A difference is the basis for a (+) or (-)

adjustment. If the property is less than two years old, the

appraiser must show the month and year of construction

completion.

14\) Condition. Enter \"Good,\" \"Average,\" \"Fair,\" or \"Poor\" when

compared to the subject. Be consistent with Side 1.

15\) Above Grade Room Count Gross Living Area. Enter room

count, which should be consistent with Side 1. Commonly,

three adjustments may be entered. For example, the first

may be an adjustment for \"expendable space\" such as a bath.

A deficiency in the number of baths should be adjusted

first. The second is a separate adjustment for a difference

in square feet. The third is an adjustment for room count.

These can be individual or separate adjustments which have

been combined. All should be extracted from the market.

But room count and bath adjustments should be on one line

and square foot adjustment for size on another line.

a\. Typically, an appraiser will not make an adjustment for

square feet difference and a difference in the room

count. An example where it could occur is a very large

home with a small room count. Any property that has an

adjustment in square feet and room count should be

explained.

16\) Basement and Finished Rooms Below Grade. Enter the type of

improvements in the basement such as bedroom, rec. room,

laundry, etc. Explain any special features. Show number of

square feet of finished area.

17\) Functional Utility. Enter \"Equal,\" \"Superior,\" or

\"Inferior,\" as a total of the items rated in the Improvement

Analysis compared to the subject. Be consistent with the

factors reported there. Use \"Comments\" section frequently

and explain special features.

a\. The category of functional utility typically is the

place to deduct for functional obsolescence which has

been observed in the subject and recorded on Side 1 and

which is not found in the comparables. Dollar

adjustments should be extracted from the market. For

example, a poor floor design that includes two bedrooms

which are located so that entrance to one is gained by

passing through the other typically requires a negative

adjustment for functional obsolescence. In such a

case, the second bedroom would not be counted as a

bedroom.

18\) Heating/Cooling. Enter an adjustment for heating and

cooling systems, if appropriate. Any adjustments should be

based upon local market expectations.

19\) Garage/Carport. Enter an adjustment for car storage.

Adjustments should be calculated in accordance with market

acceptance of carport value versus garage and size.

20\) Porches, Patio, Pools, etc. Enter an adjustment for these

features. Any adjustments should be based upon local market

expectations. For example, a pool located in an area that

expects pools might bring a dollar premium in comparison to

a comparable without a pool. However, a pool located in a

low-income area might bring a negative adjustment resulting

from an increase in maintenance.

21\) Special Energy Efficient Items. Enter an adjustment for any

energy efficient items such as storm windows and doors,

solar installations, etc.

22\) Fireplace(s). Enter any adjustment for the presence (or

absence) of fireplace.

23\) Other (e.g., Kitchen Equipment, Remodeling). Enter

adjustments for any features not covered elsewhere.

24\) Net. Adj. (Total). Check either + or - box to indicate

if the total net adjustments will increase or decrease the

sales price. If any adjustment is excessive, the

(8-3) comparables should be reviewed to determine if the best ones

were selected. Any adjustment which appears to be excessive

should be explained.

25\) Indicated Value of Subject. Total all of the adjustments

and add or subtract them to the sales price of each

comparable. Generally, adjustments should not exceed 10

percent for line items, 15 percent net adjustments and 25

percent on gross adjustments.

26\) Income Approach. The Income Approach need be completed only

for three- and four-unit properties. When used, the

appraiser is to show the gross rent from each of the

comparables at the bottom of the form under \"Final

Reconciliation\" as: Comp. #1 Gross Rent = \$1,000.00 (GRM

110); Comp. #2 Gross Rent = \$1,200.00 (GRM 108) . . . etc.

The determination of the appropriate gross rent multiplier

to use should follow the same procedure as in the market

approach by selecting the comparable which is most similar

to the subject property and utilizing the GRM found for that

comparable; or if slightly higher or lower, explain.

a\. If the Income Approach is not used, the appraiser

should draw a line through the words \"Indicated

Value by Income Approach (if applicable)\" and enter

the estimated market rent. The rest of the line

items should be marked \"N/A.\"

b\. Check the box marked \"as is\" or \"subject to repairs

. . .\"

27\) Comments and Conditions of Appraisal. In addition to any

comments which the appraiser wishes to make, the appraiser

should enter the monthly expenses estimated for closing

costs and condominium or PUD common expense as appropriate.

The appraiser must also enter VC requirement codes.

28\) Final Reconciliation. This entry should contain the

appraiser\'s reasoning for arriving at the final value. The

appraiser must sign his/her name, print name under signature

with assigned Chums identification number and date report as

of the day inspected. The reviewer also signs, dates and

writes CHUMS identification number at the bottom of the

report as of date of review.

[]{#__RefHeading___Toc169057606 .anchor}**8-4. RECONSIDERATION OF
APPRAISED VALUE**. \<[Top](#_top)\> A request for reconsideration

of value is not an automatic step for a mortgagee to take when the

appraised value is less than the sales price of the property.

Unless the mortgagee has sufficient evidence to support a higher

value, it should not be returned to the appraiser for

reconsideration. This decision must be made by the HUD staff review

appraiser or the Direct Endorsement mortgagee underwriter. The

following procedure will be used:

A. Before any request for reconsideration of value may be accepted,

the appraisal report and evidence to support a higher value must

be reviewed by a HUD staff review appraiser or a Direct

Endorsement mortgagee underwriter.

B. Only after receipt of the official Conditional

Commitment/Statement of Appraised Value may a request for

reconsideration of value be submitted, and such submission must

be made back to the reviewer accompanied by a photo (xeroxed

copies of multiple listing cards are not acceptable) of each

comparable used to support the higher value. In this way the

reviewer/underwriter will be able to obtain a visual sense of

the similarity of the comparables to the subject property. For

reconsiderations submitted to the local HUD Field Office, photos

will also be submitted.

C. If the comparables submitted are not sufficiently similar or

acceptable to support the increase, the reviewer is to reject

the request for reconsideration. If the reviewer does not

reject the request, and the appraiser performs a review of the

new comparables but finds that incorrect information was

provided about them such as size, design, sales price, location

or closing date, the appraiser will be entitled to one half of

the original fee. In such cases, the appraiser must comment on

the reason for rejecting each comparable.

D. If the reviewer/underwriter believes that the reconsideration is

valid, it must be sent to the appraiser. The appraiser will

then process the reconsideration and send the completed

appraisal report directly to the underwriter for review. The

underwriter must review the appraisal report without delay and

promptly issue the statement of appraised value to the buyer.

Statements of appraised value may not be held for delivery until

closing.

UNIFORM RESIDENTIAL APPRAISAL REPORT

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# CHAPTER 9. REVIEWS OF APPRAISAL REPORTS

#  SECTION 1. THE DESK REVIEW

[]{#__RefHeading___Toc169057609 .anchor}**9-1. PURPOSE**:
\<[Top](#_top)\>

A. The review has three major purposes:

1\) To examine, correct and modify reports to obtain accuracy,

consistency and soundness of conclusions.

2\) To determine quality and efficiency of work completed by

appraisers, and to aid in training and supervision.

3\) During the post endorsement technical review of Direct

Endorsement cases, to determine the accuracy of the

appraisal report and the quality of the Direct Endorsement

Underwriter\'s appraisal review.

B. Cases Requiring Special Attention. The following types of cases

require special attention by the reviewer:

1\) Proposed Construction Cases and newly constructed properties

with HUD-approved ten-year warranties.

2\) Complex or unusual cases.

3\) Reports of newly appointed panel members or those known to

require close supervision.

4\) Cases involving special or new programs.

5\) Cases that may establish precedents in the new areas.

C. REVIEW PROCEDURES:

1\) Whether under the Direct Endorsement procedure or HUD

processing, every appraisal received is desk reviewed to

determine whether or not the appraiser s conclusions are

acceptable prior to the issuance of the statement of

appraised value or conditional commitment. The review

consists of the following:

a\. Verification (from available data) that the factual

information submitted is correctly reported.

b\. Determination of the plausibility and consistency of the

conclusions based upon data presented in the report.

(9-1) c. Determination of the consistency of the reported

conclusions by comparison with other data

conclusions reported in similar cases recently

processed.

d\. Compliance with HUD underwriting instructions.

2\) The reviewer uses, among others, the following sources of

data:

a\. Mortgagee\'s Application.

b\. Recorded Sales Data.

c\. Subdivision Binder.

d\. Sales contract and other evidence of acquisition cost.

e\. For newly constructed properties refer to HUD Handbook

The reviewer shall determine which cases require field

review based upon doubts he/she may have as to the validity

of the conclusions found in the report.

3\) Signature of Reviewer. Each reviewer must sign and date the

report (initials are not satisfactory) and is fully

responsible for the quality of the review of the report.

[]{#__RefHeading___Toc169057610 .anchor}**9-2 Review of the Appraisal
Report**. \<[Top](#_top)\>

A. It is incumbent upon the reviewer to carefully analyze the

report for reasonableness and a logical conclusion of value.

Large adjustments should suggest that a comparable may not be

suitable, and in such a case the reviewer should check the

office data for other comparables which the appraiser could have

used. The pictures of the comparables will aid the reviewer in

confirming information in the appraisal report. The reviewer

must also be aware of the values of central air conditioning,

storm windows, and other such items which affect market value.

B. If found to be acceptable, and the property is eligible for

mortgage insurance, the reviewer signs and dates the report and

computes the maximum mortgage amount for the property.

C. If the reviewer concludes that the appraisal report findings are

inconsistent, or are otherwise unacceptable, the reviewer must

contact the appraiser or return the case to the appraiser for

reconsideration. The reviewer may also modify or amend the

report in any manner which can be supported by

(9-2) HUD valuation policy adequately documented. This includes the

adjusting of value, the removal or addition of repair

requirements, and the overall determinations of property

approval and rejection.

D. The reviewer must determine if the appraiser has provided a

fully documented report about the subject property and if the

judgments rendered by the appraiser are reasonable.

E. The reviewer should review the front page of the appraisal

report which encompasses the neighborhood, typical age, values,

rents, etc. This provides a broad picture of the environment in

which the subject property is located. The required photos and

map help to enhance the reviewer\'s understanding of the type of

property being appraised. Of primary concern to the reviewer in

examining this front page of the appraisal report is:

1\) Is the information consistent?

2\) Is the property in a \"Special flood hazard area?

3\) Has the appraiser inserted the FEMA map and zone, if

available?

F. On the back page of the Appraisal Report, the reviewer should

check the perimeter dimensions shown in the building sketch for

consistency with the gross living area shown in the sales

comparison analysis.

G. To the right, although the appraiser is not required to complete

the cost analysis for a single family existing dwelling, the

estimated site value must be shown.

H. When reviewing the sales comparison analysis, the reviewer must

carefully examine each critical area, as mentioned previously,

for anything which appears unreasonable. Taking each critical

area in order, the reviewer examines:

1\) The distance between the comparables and the subject, and if

one of them is a conventional sale, if available. In an

urban area, ten or fifteen blocks may appear reasonable,

whereas anything over that could constitute an entirely

different neighborhood and environment.

2\) The comparable sales data should not be over six months old.

Anything over six months may reflect a different market. If

a comparable is seven or eight months old, the reviewer

should expect an explanation for its use and possibly an

adjustment relating to any upward or downward

(9-2) trend in the marketplace, if appropriate. Any comparable a

year or more old is unacceptable, except in those rare cases

where there are no comparables within a reasonable distance

which were recent sales. This may occur in certain rural

areas.

3\) The comparables should be reasonably equal to the subject in

size, age and design. The reviewer must recognize that it

is not always possible to find three comparables very close

in similarity to the subject. If the subject is a Cape Cod,

and no recent sales of Cape Cods can be found, then the

reviewer would expect the appraiser to use a one and a half

story home, and make the necessary adjustments. If the

subject contained fifteen hundred square feet of finished

living area (not including a finished basement) the reviewer

would expect the comparables to range in size from twelve

hundred to eighteen hundred square feet, so that a

reasonable adjustment could be made.

4\) The reasonableness of the adjustments is examined. This is

the most important part of the appraisal report, since the

total adjusted values of the comparables bracket the market

value of the subject. The reviewer must be familiar with

the neighborhood and what the market is willing to pay for

differences such as central air conditioning, energy-saving

features, screened and unscreened porches, patios, etc.

Also, an adjustment may be necessary for a larger or smaller

home, or perhaps an extra bedroom, even if it is small. In

reviewing these adjustments the reviewer looks for

consistency. For example, if the appraiser uses an

adjustment of fifteen hundred dollars for central air

conditioning for one comparable, the same amount of

adjustment would be expected to be used for the other

comparables in the report; or if ten dollars per square foot

is used for a size adjustment, this same amount would be

expected to be used for the other comparables, considering

of course, that they were of approximately the same age and

construction. The reviewer should calculate the dollar

amount per square foot which the appraiser used to adjust

for size keeping in mind what a new house of that type would

cost in accordance with cost figures found in the Marshall

and Swift Cost Handbook. This is an area which has been

much abused. The reviewer should know what the market in a

particular area is willing to pay for size difference and

such figures should not be exceeded without a clear

explanation from the appraiser. The reviewer should, in

such cases, refer to the Marshall and Swift Cost Handbook to

(9-2) determine what the basic cost per square foot would be

for a new, like dwelling before contacting the appraiser.

Also, adjustments for very small differences are

questionable.

5\) Along these same lines, the reviewer should look for

consistency in land values. There should not be adjustments

for lot sizes in a neighborhood of similarly sized lots. A

corner lot which may be considerably larger and more

desirable might call for some adjustment. The typical buyer

does not take into consideration a few feet difference. If

the location of a lot in a given subdivision were at the

edge of a golf course and considered prime in the area, then

a reasonable adjustment would be acceptable.

6\) The reviewer must analyze the final adjusted value of each

comparable. If good comparables were used, the final

adjusted value of each comparable should be very close to

one another, perhaps within ten to fifteen percent. The

reviewer then checks to see if the appraiser has selected

the comparable most similar to the subject in arriving at

the final estimate of value.

#  SECTION 2. THE FIELD REVIEW

[]{#__RefHeading___Toc169057612 .anchor}**9-3. GENERAL**.
\<[Top](#_top)\> The field review measures the quality of the
appraiser\'s

performance. Field reviewers must be professional and unbiased

to assure that the appraiser has followed accepted appraisal

techniques and arrived at a logical conclusion. Adjustments for

location, site/view, design/appeal and age/condition are judgmental

factors, and where such adjustments do not appear appropriate, the

reviewer should comment about these items on the Field Review form.

A quality field review should contain full comments about every

aspect of the appraisal report in a constructive manner so that the

appraiser will understand those areas of the report which are good

and others which may need improvement.

Field offices must field review a minimum percentage (as established

by HUD Headquarters),of selected appraisals and repair inspections

performed by appraisers. This includes each fee and DE staff

appraiser\'s cases. A minimum percentage (as established by HUD

Headquarters) of these field reviews must also include an interior

inspection of the property.

[]{#__RefHeading___Toc169057613 .anchor}**9-4. TIME FRAME AND DOCUMENTS
REQUIRED FOR FIELD REVIEWS**. \<[Top](#_top)\>

A. The goal for performance of field reviews of HUD processed cases

is thirty days from the date the HUD review appraiser issues a

conditional commitment or rejects the property. The time limit

for performance of field reviews of DE cases is thirty days

after receipt of the URAR copy and the HUD-92800. To perform a

thorough field review on DE cases, Field Offices may require

more than the Copy of the URAR and 92800, e.g., photocopies of

the photographs and other documentation from appraisers, at the

Field Office\'s discretion.

B. Timeliness is essential to ensure quality field reviews.

Moreover, meeting the thirty-day goal will result in a more even

distribution of field reviews throughout the fiscal year. If

the properties are a great distance from the Field Office and

meeting the thirty day goal would impose a hardship, this

timeframe may be extended to sixty days.

[]{#__RefHeading___Toc169057614 .anchor}**9-5. SELECTING CASES FOR FIELD
REVIEWS**. \<[Top](#_top)\>

A. The following types of cases should be selected for review:

1\) Cases performed by Appraisers who have recently received

poor (\"1 or 2\") ratings. (CHUMS report F17FOCA, Field

Review Report identifies appraisers who have received poor

ratings.)

(9-5) 2) Cases performed by new appraisers.

3\) Cases on which complaints are received.

4\) Cases underwritten by new DE Mortgagees.

5\) Cases involving property in older, declining areas.

6\) Cases identified through the desk review process. The

following may be reasons for setting certain appraisals

aside for field reviews:

a\. Pictures do not match description of subject or a

comparable. (Says slab but pictures show crawl.)

b\. Picture of subject shows had roof, missing shingles, or

peeling paint, etc., but no requirements\--or comparables

appear in bad condition and no adjustments made.

c\. Adjustments made for location but comparables all within

close proximity\--or unreasonable location adjustments.

d\. No repair requirements for an older home in average

condition.

e\. Appraiser suggests 223(e) and Reviewer is not sure. (No

pictures of street scene or vacant or boarded-up

properties.)

f\. Complaint or second reconsideration request.

g\. Former PD property with appraised value in excess of 10

percent of PD sales price.

h\. Appraiser fails to check off any kitchen equipment.

(Need to do interior review.)

i\. All comparables a mile or more away. (Except in rural

areas, check data for closer-in comparables.

j\. Pictures indicate house may be considerably smaller than

square footage shown. (Basement may have been

included.)

k\. Cases involving property in areas of high foreclosure or

declining values.

[]{#__RefHeading___Toc169057615 .anchor}**9-6. FIELD REVIEW OF MORTGAGOR
COMPLAINTS**. \<[Top](#_top)\>

Mortgagor complaints involving existing properties should be routed

to the Valuation Section for field review if the complaint involves

major mechanical items or an extensive list of deficiencies.

[]{#__RefHeading___Toc169057616 .anchor}**9-7. COMPLETION OF THE FIELD
REVIEW FORM 1038v (See exhibits 1-5 at end of chapter)**.
\<[Top](#_top)\>

A. All field reviews must be completed on form HUD 1038v.

Reviewers should provide useful comments on the review form.

The Field Reviewer should either concur with the appraiser\'s

judgement or non-concur and explain why. Interior reviews are

an important part of the field review since a serious oversight

by the appraiser of a noticeable defect in the property could

affect the health and safety of the occupants or the continued

marketability of the property. Small cracks in windows,

dripping faucets, torn screens and other small homeowner-type

repairs should be obvious to the buyer and not detrimental to

the overall value of the property. However, a noticeable crack

in the basement foundation wall, water standing in the basement

or crawl space, a bubbled roof or stains on the ceiling

indicating a possible leak in the roof are obvious items which

the appraiser is expected to report and require correction.

B. The Field Review form is the Review Appraiser\'s Report to the

Field Office of the facts concerning the appraisal reviewed.

Once a field review is complete and the Form 1038v is submitted

to the Field Office, HUD is responsible for all following

actions. The rating of the field review report is HUD\'s

responsibility, not the individual field review appraiser. The

copy of the field review form that will be sent to the fee

appraiser will not include the field review appraiser\'s name.

C. THE RATING OF THE APPRAISAL REPORT.

1\) The Chief Appraiser (or designee) must review each field

review report and rate the fee or DE staff appraiser using

the 1-5 numerical rating system (see Appraisal Evaluation

Matrix, Exhibit #4 at end of chapter). Each appraisal must

be rated on its own merit, not on past performance of the

appraiser. A \"3\" rating should be assigned if the appraiser

has made errors and/or omissions, but such errors and/or

omissions have a minimal effect on the final value. Errors

and/or omissions which lead to value determinations which

are an unacceptable underwriting risk to the Department

should lead to \"2 or 1\" ratings. Any appraisal which

indicates that the appraiser did not visit the subject

property or the

(9-7) comparables, should result in a \"1\" rating. Any appraiser

who is found to knowingly provide false information in an

appraisal report should be removed from the panel by Limited

Denial of Participation as set forth in HUD Handbook 4020.1

Rev-1.

2\) After each review, the Chief Appraiser must send the

original of the Form 1038v to the fee appraiser informing

the appraiser of the results of the field review. Copy 2 of

the form should be retained as a tickler to make sure the

fee appraiser responds by the required date and may be

destroyed upon receipt of original from the appraiser. The

fee appraiser will be instructed on the form to come in for

a personal meeting with the Chief Appraiser for a \"2 or 1\"

rating. After three \"2 or 1\" ratings, the Chief Appraiser

must:

a\. Institute short term (30-day) training, during which

time the appraiser should be given only a limited number

of cases that can be monitored closely; or,

b\. Remove the individual from the Fee Appraiser Panel by

LDP or other appropriate means.

3\) Documentation of each fee appraiser\'s performance is

important. Files must be updated regularly. Copies of all

field review ratings along with a record of disciplinary

meetings, training sessions, and phone calls must be

documented in each fee appraiser\'s file. Without this

documentation it is difficult to justify action against a

problem fee appraiser.

4\) Selected field review reports which show deficient

performances will be used as an additional basis for

continued training for the entire staff.

5\) In the case of DE staff appraisers, field review

requirements are set forth in HUD Handbook 4000.4, REV.1.

[]{#__RefHeading___Toc169057617 .anchor}**9-8. MONITORING OF FIELD
REVIEWERS**. \<[Top](#_top)\>

A. Five percent of every field reviewer\'s work must be reviewed by

the Chief Appraiser (or designee). If the field reviewer is a

HUD staff person, the quality of the field review will be

reflected in the employee\'s work performance evaluation rating.

B. If the Field Office assigns a rating of \"3\" or less to a field

review fee appraiser, the Chief Appraiser will inform the field

review fee appraiser by sending an official letter of warning.

(A copy should be retained in the field review fee appraiser\'s

(9-9) file.) The letter will inform the field review fee appraiser to

either respond in writing for a \"3\" rating or come in for a

personal meeting for a \"2 or 1\" rating. Additional cases should

not be assigned to field review fee appraisers until they

respond to the \"2 or 1\" rating. After more than one \"2 or 1\"

rating, the Chief Appraiser must remove the individual from the

Field Review Appraiser Panel by LDP or other appropriate means.

C. Documentation of each field review fee appraiser\'s performance

is important. Copy 2 of the Form 1038v should be used to rate

the performance of the field reviewer and this copy should be

placed in the personnel file of the field reviewer. Files must

be updated regularly. Copies of all field review appraiser\'s

ratings along with a record of disciplinary meetings, training

sessions, and phone calls should be included in each field

review appraiser\'s file. Without this documentation it is

difficult to justify action against a problem field review

appraiser.

Appraisal Field Review Exhibit 1.

Report

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Exhibit 2.

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Exhibit 5.

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Exhibit 4.

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Exhibit 3.

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# CHAPTER 10. MANUFACTURED (MOBILE) HOMES

#  SECTION I - TITLE I MORTGAGE INSURANCE

[]{#__RefHeading___Toc169057620 .anchor}**10-1. GENERAL**.
\<[Top](#_top)\> HUD\'s terminology for Mobile home has been changed to

\"Manufactured Home\" but does not include Modular construction which

is also a factory built home but is treated the same as stick-built

housing, even though it too contains a manufacturer\'s label.

Appraisals of manufactured home lots are the responsibility of fee

panel appraisers. Under Title I, the manufactured home units

themselves are not appraised in the field.

[]{#__RefHeading___Toc169057621 .anchor}**10-2. MANUFACTURED HOME LOT
APPRAISALS** \<[Top](#_top)\> - A lot appraisal may be requested

to establish value for determining the maximum loan proceeds

allowable for a manufactured home lot loan or a combination loan

(home and lot). A lot appraisal may also be requested in order to

establish a value for claim purposes on a foreclosed lot or

home-and-lot combination.

[]{#__RefHeading___Toc169057622 .anchor}**10-3. MANUFACTURED HOME LOTS**
\<[Top](#_top)\> - A manufactured home lot may consist of

platted or unplatted land, a lot in a recorded or unrecorded

subdivision (including a planned unit development), or an improved

area of such subdivision. A manufactured home lot may also consist

of an interest in a manufactured home condominium project (including

an undivided interest in the common areas) or a share in a

cooperative association which owns and operates a manufactured home

park. The lot may be located within Indian trust lands if the

borrower owns the lot.

[]{#__RefHeading___Toc169057623 .anchor}**10-4. INDIVIDUAL LOT
ACCEPTABILITY**. \<[Top](#_top)\> HUD requires the lender to obtain

certifications by the appropriate government officials that the

individual lot offered for sale meets the following criteria:

A. The lot complies with local zoning ordinances and regulations.

However, the absence of zoning requirements shall not in itself

necessitate rejection.

B. Adequate vehicular access from a public right-of-the-way is

available to the lot.

C. Adequate water supply and sewage disposal facilities are either

available to or on the lot. The lot shall be served by adequate

public or community water and sewage systems, unless appropriate

local officials certify that either or both systems are

unavailable to provide an adequate level of service to the

manufactured homesite. If either or both such systems are not

(10-4) available, the lot shall comply with local or State minimum lot

area requirements for the provision of on-site water supply

and/sewage disposal.

(10-4) D. Any other minimum local standards and requirements for site

suitability are met. Where minimum local standards for water

supply and sewage disposal are not established or enforced, the

lender shall obtain a certification from a registered civil

engineer that the lot meets minimum standards for water supply

and sewage disposal as prescribed by the Secretary.

E. The site must have adequate electric service; gas service is

optional.

F. The requirement: \"Anchoring devices shall be installed as

recommended for the hazard zone of the site and the manufactured

home being placed thereon,\" shall be placed on each Statement of

Appraised Value, Form HUD-92801A.

G. A final inspection shall be made by the original appraiser on

all lots requiring site preparation in order to insure

compliance with requirements set forth in the Statement of

Appraised Value, Form HUD-92801A. Final Inspection Reports

shall be issued when site preparations are acceptably completed.

H. No manufactured home loan shall be eligible for insurance if the

property securing repayment of the loan is located in an area

that has been identified by the Federal Emergency Management

Agency (FEMA) as having special flood hazards, unless the

community in which the area is situated is participating in the

National Flood Insurance Program, and flood insurance on the

property is obtained by the borrower in compliance with section

102(a) of the Flood Disaster Protection Act of 1973 (42 USC

4012(a)). The amount of such insurance need not exceed the

unpaid balance of the loan, but the insurance shall be

maintained by the borrower and a current policy retained by the

lender for the full term of the loan or until the property is

repossessed or foreclosed by the lender, and the lender shall be

named as a loss payee of insurance benefits.

[]{#__RefHeading___Toc169057624 .anchor}**10-5. PROCESSING INDIVIDUAL
LOT APPLICATIONS**. \<[Top](#_top)\> Manufactured home lot

appraisals shall be processed within the same five-day time frame

established for other appraisals

A. When the Field Office assignment clerk receives a request for a

case number and the name of an appraiser, a special case number

is assigned to identify manufactured home lot appraisals. The

three digit numbering code used to identify a state and Field

(10-5) Office shall be used as the prefix number, followed by a four

digit number to identify the file sequence (example: 201-0001).

Each Field Office shall begin the series with the four digit

numbering system beginning with 0001.

B. The mortgagee must forward the Form HUD-92801, Application and

Request for Manufactured Home Lot and/or Site Preparation, and

instructions, to the appraiser. (See pages 10-4a and b.)

C. When determining the estimate of value for the lot, the

appraisal shall be made by comparison with other lots offering

similar amenities.

D. Upon completion, the appraiser shall send the original and one

copy of the appraisal report, a snapshot of the lot and one of

each comparable to the Field Office for review.

E. The reviewer shall check for information relative to flooding,

subsidence, zoning, or other location deficiencies from data

available in the office, and note any adverse influences in the

file, or determine that the site is a preliminary reject from

information already contained in the office.

F. After completing the review, the review appraiser shall complete

the Statement of Appraised Value, Manufactured Home Lot and/or

Site Preparation, Form HUD-92801-A, and sign as \"Authorized

Agent.\" The completed Statement of Appraised Value will be

mailed to the lender, and a copy retained in the binder. (See

page 10-4c.)

G. A conditional commitment shall not be issued when processing

manufactured home lot appraisals.

H. The case binder with the original application and supporting

documents shall be filed numerically in a file separate from the

regularly processed cases and retained for a period of at least

three years.

[]{#__RefHeading___Toc169057625 .anchor}**10-6. UNDEVELOPED LOT**.
\<[Top](#_top)\> Only those improvements which are necessary to

make the lot suitable for placement of a manufactured home may be

financed (i.e., concrete pad, permanent foundation, appropriate

driveway, provision for anchoring, on-lot water and utility

connections, sanitary facilities, lot improvements and landscaping).

Excluded are items such as swimming or wading pools, barbecue pits

and other ancillary facilities. Costs of necessary improvements

will be arrived at by the appraiser on the basis of costs set forth

in either a contract or proposal from the builder, together with a

complete itemization of materials and labor.

[]{#__RefHeading___Toc169057626 .anchor}**10-7. PROPOSED MANUFACTURED
HOME SUBDIVISION CRITERIA**. \<[Top](#_top)\> Proposed

manufactured home subdivisions for individual site ownership must

meet the minimum criteria established in Handbook 4940.5, Minimum

Design Standards for Manufactured Home Parks. A subdivision plat

and protective covenants approved by the local authorities are

required. Evidence shall be submitted that the streets and

drainage, water supply and sanitary sewage systems have been

accepted for continuous maintenance by the local authority that

has jurisdiction.

[]{#__RefHeading___Toc169057627 .anchor}**10-8. PROCESSING THE
SUBDIVISION APPLICATION**. \<[Top](#_top)\> Processing shall be in

accordance with outstanding subdivision processing procedures in

Handbook 4135.1, Subdivision Analysis and Procedures for Home

Mortgage Insurance. Where common area charges against all lot

owners may constitute a lien, processing shall be in accordance with

PUD procedures in Handbook 4140.1, Land Planning Principles for Home

Mortgage Insurance. Lot values shall be determined by using

comparable manufactured home subdivisions offering similar amenities

where available. Included in the value of the site are all realty

items such as the pad, driveway, utilities, and provisions for

anchoring. Where lot values must be estimated from data involving

non-manufactured home sites, the value will be adjusted for the

realty items common to the manufactured home site but not included

in the non-manufactured site. Manufactured home subdivision

feasibility applications shall be processed under the same

procedures required for subdivisions with respect to Affirmative

Marketing Plan requirements. Environmental considerations and

clearance requirements shall be processed in accordance with Chapter

8 of Handbook 4010.1, Definitions, Policy Statement, and General

Rulings.

[]{#__RefHeading___Toc169057628 .anchor}**10-9. PROCESSING FORECLOSED
MANUFACTURED HOME SITES**. \<[Top](#_top)\> When a manufactured

home site appraisal is required after foreclosure, the same case

number will be used that was assigned to the initial site appraisal.

The appraisal shall be processed within the same five day time frame

established for existing properties. A field inspection is

mandatory.

[]{#__RefHeading___Toc169057629 .anchor}**10-10. MANUFACTURED HOME LOT
APPRAISAL REPORT**. \<[Top](#_top)\> The appraiser will complete

Forms HUD-92801, Application and Request for Manufactured Home Lot

and Site Preparation Appraisal, when making an appraisal on a

foreclosed lot. The completed appraisal report will be reviewed for

accuracy and completeness. The review appraiser will prepare and

sign the Statement of Appraised Value (Form HUD-92801A) as

authorized agent, forward the original to the lender and retain a

copy in the file.

APPLICATION FOR MANUFACTURED HOME

LOT AND SITE PREPARATION APPRAISAL

[Click Here for
Graphics](http://www.hudclips.org/sub_nonhud/cgi/pdfforms/41501c10.pdf)

#  SECTION 2. TITLE II MORTGAGE INSURANCE

[]{#__RefHeading___Toc169057631 .anchor}**10-11. ELIGIBILITY: PROPOSED
CONSTRUCTION**. \<[Top](#_top)\>

A. To be eligible for FHA mortgage insurance under Title II, a

property with a manufactured (mobile) home must comply with

requirements set forth in HUD Handbook 4145.1, Chapter 3.

B. APPRAISAL: EXISTING CONSTRUCTION.

1\) Appraisers should use normal single family residential

appraisal techniques when appraising manufactured housing.

Other factory built housing may provide the most similar

comparables so every effort should be made to obtain such

comparables even though their distance from the subject may

be greater than normally desirable. In situations where

there is no other factory built housing within a reasonable

distance from the subject property, conventionally built

homes may be used with appropriate adjustments made for

size, location, construction materials, quality, etc. Sales

data for manufactured homes can usually be found in local

transactions records.

2\) For proposed construction, Marshall and Swift cost data may

be used as a guide.

3\) It will be the appraiser\'s responsibility to confirm that

the manufactured home under appraisal meets requirements for

acceptance of manufactured housing as evidenced by an

affixed certification label.

4\) Since manufactured housing is usually located in outlying

areas, the appraiser must also determine the market

acceptability of the property, which should be noted in the

appraisal report and reflected in the appraised value.

D. Inspection.

1\) Fee appraisers making appraisals or inspections of existing

manufactured homes may have difficulty in determining

compliance with the requirements in HUD Handbook 4145.1:

(10-11) a. In some cases, a visual inspection will be adequate to

determine compliance. In other cases, it may be

practical to examine the builder\'s site and foundation

plans and Description of Materials and then determine

from visual inspection whether the construction appears

to be in compliance and secure a certification of

compliance from the builder.

b\. During appraisals and inspections, it will generally be

infeasible to determine whether a proposed unit or an

existing unit permanently erected on a site for less

than one year prior to the date of application for

mortgage insurance was properly stiffened and braced

during transportation. Appraisers and inspectors

should examine dwellings to assure that there is no

obvious damage or loosening of fastenings that may have

occurred during transportation. For proposed

construction, the builder must warrant the property

against such damage, which should protect the Federal

interest.

c\. Lot evaluation determinations related to potential

flooding shall be based upon information shown on

National Flood Insurance Program Flood Insurance Rate

Maps, where available. In all other cases, they should

be based upon recommendations of the Regional Civil

Engineering staff.

d\. The builder of the manufactured home property, for

proposed construction, shall submit with the

application for insured financing design calculations,

details and drawings for the installation, anchorage

and construction of the permanent foundation as set

forth in HUD Handbook 4930.3 certified by a

professional, licensed engineer. Also, the perimeter

enclosure to be used should be included (See HUD

Handbook 4145.1).

E. VA-CRV\'S. Because the Department of Veterans Affairs accepts

manufactured housing regardless of age or prior occupancy or

other HUD eligibility requirements, CRV\'s are not acceptable for

conversion to HUD commitments for insurance.

# CHAPTER 11. CONDOMINIUMS AND PLANNED UNIT DEVELOPMENTS

#  SECTION 1. CONDOMINIUMS

[]{#__RefHeading___Toc169057634 .anchor}**11-1. GENERAL**.
\<[Top](#_top)\> Section 234(c) of the National Housing Act provides

authority to insure any mortgage covering a one-family unit in a

project coupled with an undivided interest in the common areas and

facilities which serve the project. The project may include

dwelling units in detached, semi-detached, row, garden-type, low or

high rise structures. Regulations governing this program are

contained in Chapter II of Title 24 of the Code of Federal

Regulations under Section 234. Also see HUD Handbook 4265.1.

[]{#__RefHeading___Toc169057635 .anchor}**11-2. DEFINITIONS**.
\<[Top](#_top)\>

A. Mortgage. A first lien covering a fee interest or eligible

leasehold interest in a one-family unit in a project, together,

with an undivided interest in the common areas and facilities

serving the project.

B. Family Unit. A one-family unit including the undivided interest

in the common areas and facilities and such restricted common

areas and facilities as may be designated.

C. Common Areas and Facilities. Areas that are for the use and

enjoyment of the owners of family units located in the project.

The areas may include the land, roof, main walls, elevators,

staircases, lobbies, halls, parking spaces and community and

commercial facilities.

D. Restricted or Limited Common Areas and Facilities. Those areas

and facilities restricted for use by a particular family unit or

number of family units.

E. Project. A structure or structures containing four or more

units.

F. Conversion. The creation of the condominium as of the date on

which all the documents necessary to create a condominium regime

have been recorded in accordance with State and/or local law.

G. Tenant. The occupant named in the lease or rental agreement of

a housing unit in a project as of the date the condominium

conversion documents are properly filed for the project, or as

of the date on which the occupants are notified by management

of intent to convert the project to condominium, whichever is

earlier.

(11-2) H. Bona fide Tenants\' Organization. An association formed by the

tenants to promote their interest in a particular project, with

membership in the association open to each tenant and all

requirements of the association applying equally to each

tenant.

I. Condominium Fee: (Assessment). The apportionment of common

expenses that are to be charged to a unit owner in a manner to

be determined in the declaration or by-laws. The charge may

include costs for utilities on individual units and on common

use buildings, security requirements, salaries for employees of

the association and repairs to common facilities.

[]{#__RefHeading___Toc169057636 .anchor}**11-3. GENERAL REQUIREMENTS FOR
APPROVAL** \<[Top](#_top)\>

A. Presale Requirements. In order to assess the marketability of

the units, the Field Office will require that 70 percent of the

total units be sold before endorsement of any unit mortgage.

The presale could be reduced to as low as 51 percent with the

approval of the Field Office if there is an active market for

the units. Generally, presales apply to proposed or newly

constructed projects. However, in an existing project where

the developer is still marketing units, the same presale

requirement will apply. This includes properties converted

from rental projects.

Valid presales include an executed sales agreement and evidence

that a lender is willing to make the loan. A mortgagee may

certify that this requirement has been met.

B. Owner-occupancy Requirements for Project Approval. At least 51

percent of the units of a project must be occupied by the

owners or sold to owners who intend to occupy the units. Field

Offices have the option to increase the percentage to as high

as 70 percent depending upon the market conditions in the area.

If the owner-occupancy ratio includes presales, we require an

executed sales agreement, evidence that a lender is willing to

make the loan and the buyer intends to occupy the unit. A

mortgagee may certify that this requirement has been met.

Note: Both the owner-occupancy and presale requirements may

be certified at the time the case is submitted for

endorsement. Individual applicants may be processed

through firm commitment or borrower approval by a

Direct Endorsement underwriter; however, no mortgage

will be insured until these requirements have been

satisfied.

(11-3) C. Owner-occupancy Requirements for HUD/FHA-insured Mortgages.

Once a project is approved, at least 80 percent of the units on

which there are HUD insured mortgages must be owner occupied.

D. Conversions from Rental Housing to Condominiums. Units in any

project converted from rental housing to condominium ownership

are not eligible for insurance and HUD will not process the

project unless:

1\) The conversion occurred more than one year before the

application for mortgagor approval; or

2\) The mortgagor or comortgagor was a tenant of that rental

project; or

3\) The conversion of the property is sponsored by a bona fide

tenants organization representing a majority of the

households.

The project must also meet all other requirements for approval.

E. Condominium Document Approval. An attorney must certify that

all condominium legal documents meet HUD guidelines,(HUD

Handbook 4265.1, Appendix 24) and state and local condominium

laws. Approval of documents as evidenced by VA letter FL 26-619

or [FNMA form
1028](http://www.hudclips.org/sub_nonhud/cgi/pdfforms/fnma1028.pdf) may
be accepted in lieu of an attorney\'s

certification. In all cases, a copy of the documents must be

obtained for the Field Office file.

F. Completion of Construction. Since HUD is insuring a mortgage on

a unit and an undivided interest in the common elements, the

entire condominium project, including the common facilities,

should be complete before any mortgage is insured.

If, however, the project is being constructed in legal phases,

mortgages may be insured on a phase by phase basis provided:

1\) The developer submits a development plan which shows the

total number of units and all planned community

facilities;

2\) There is reasonable expectation that the developer will

complete the project as planned.

3\) Community facilities (for the project) are completed

or escrowed at 150 percent before insuring mortgages in the

initial phase;

(11-3) 4) In projects where the community facilities are substantial,

the developer will pay a proportional share of cost related

to the community facilities based on the percentage

attributable to each \"unit/space\" which has not been

conveyed to a condominium owner; and

5\) Each phase meets the presale and owner-occupancy

requirements.

G. Manufactured housing as defined in 24 CFR 203.43(f) is not

eligible for mortgages insured under Section 234.

H. Recertification of Approvals. Approvals of condominium projects

should be recertified periodically to determine that the project

is still in compliance with HUD\'s owner-occupancy requirement

and that no conditions currently exist which would present an

unacceptable risk to the insurance fund.

It is not necessary for the HUD Field Office to automatically

review all projects on its approved list. However, when an

application for mortgage insurance is received for a project

which was approved or recertified more than two years ago, or if

the HUD office becomes aware of any adverse conditions, the

project should be evaluated. Based upon the individual

circumstances, if serious problems exist, the approval could be

withdrawn.

[]{#__RefHeading___Toc169057637 .anchor}**11-4. APPROVAL AND PROCESSING
INSTRUCTIONS**. \<[Top](#_top)\> Approval of condominium

projects consists of: (1) acceptability of the structure (four or

more units), site, and location; and (2) acceptability of the

condominium organization and operations. The documents required and

processing steps will vary depending upon the individual project and

the state of construction. The categories are as follows:

A. Proposed construction. A new development where no construction

has started. There is no insured project mortgage and no

insurance of advances. (See paragraph 11-5)

B. Developments with buildings under construction or existing less

than one year. The project is currently under development and

may contain buildings in various stages of construction. (See

paragraph 11-6)

C. Existing construction (non-operating condominium association).

The construction of the building(s) has been completed over one

year, however, original units remain unsold and the

developer/sponsor is still in control. (See paragraph 11-7).

(11-4) D. Existing construction (established operating condominium

association. All units have been completed over one year and

the developer has relinquished control of the association to the

homeowners. (See paragraph 11-8)

[]{#__RefHeading___Toc169057638 .anchor}**11-5. PROPOSED CONSTRUCTION**.
\<[Top](#_top)\> New development and no construction has been started.

A. The sponsor submits the following to Field Office:

1\) Application for Environmental Review (Form HUD 92250) and a

description of the development indicating type of

condominium structure, number of units and common

facilities;

2\) Location map;

3\) Preliminary condominium site plan;

4\) Equal Employment Opportunity Certificate ([Form HUD
92010](http://www.hudclips.org/sub_nonhud/cgi/pdfforms/92010.pdf));

5\) Affirmative Fair Housing Marketing Plan; and

6\) A letter from the State Historic Preservation Office

indicating the project is acceptable.

B. The Valuation Branch assigns a control number and completes the

environmental review (HUD Handbook 4135.1).

C. If the project is environmentally acceptable, an Environmental

Review Letter will be issued by HUD outlining any environmental

conditions requiring mitigation and additional documents to be

submitted including, but not limited to, the following:

1\) Three sets of construction documents (plans and

specification) certified by sponsor/builder (Appendix A,

page 11-17A) or architect (Appendix B, page 11-17B) that

clearly fix the scope of work, define and describe

materials used and illustrate the construction and methods

of assembly. Include all exhibits outlined in the

following:

a\. Horizontal construction (units side-by-side). Refer

to HUD Handbook 4145.1, Architectural Processing and

Inspections for Home Mortgage Insurance, Chapter 2.

See HUD requirements in Appendix K of HUD Handbook

4910.1, Minimum Property Standards for Housing.

b\. Vertical construction (units over and under one

another). Refer to HUD Handbook 4460.1, Architectural

(11-5) Analysis and Inspections for Project Mortgage

Insurance, Chapter 2. (Do not include the

\"Supplementary conditions of the Contract of

Construction\" in paragraph 2-19.b.) See HUD

Requirements in HUD Handbook 4910.1, Minimum Property

Standards for Housing. Site design and construction

must comply with Site Grading and Drainage Guidelines

in Appendix 8, HUD Handbook 4145.1.

2\) All Condominium legal documents (with an attorney\'s

certification)

3\) Proposed operating budget including reserves

4\) Proposed management plan

D. The Field Office reviews the submission to assure that all

certifications are acceptable and that the operating budget and

management are adequate. The form HUD-92258 is then issued

stating conditions of the approval that include presale and

owner-occupancy requirements. The developer/sponsor must sign

and return the form indicating acceptance of the conditions.

E. The mortgagee may request appraisals, either for individual

units or through the MCC/MAR procedure, and the sponsor may

request an \"early start\" for construction (HUD Handbook 4145.1,

Appendix 6). The fee appraiser will not be required to prepare

a replacement cost estimate.

F. For buildings containing 12 units or less and no more than three

stories of living units, the sponsor/builder submits a

certification that the units were constructed in accordance with

local codes and applicable HUD requirements (See Appendix C,

page 11-17C). A fee inspector is required to make inspection

according to type of structure.

1\) Single family type - no living units over or under any

other living units - three inspections are required.

2\) Multifamily type - living units over or under other units

\- inspections must be made at various stages of construction

(minimum of eight hours per month). Inspection fee is the

same as for multifamily projects.

G. For buildings containing 13 units or more, or over three stories

of living units in height, an Architect\'s certification of the

construction of the building is required (see Appendix D).

1\) Evaluation and acceptance of the architect.

(11-5) a. Owner-Architect Agreement: (AIA Document B181) will

be executed and submitted to HUD with the application

for MCC/MAR. Any agreement or arrangement between the

sponsor and architect prior to the execution of the

appropriate Owner-architect Agreement will be

superseded by such agreement when executed. HUD must

not be incorporated into any specific provision of the

Agreement.

Changes must not delete any service, either by the

Architect or Owner, necessary to the specific

project.

b\. Qualifications: The architect (or firm) is licensed

in the state where the project will be built.

c\. Identity of Interest: Where an identity of interest

exists between the design architect and sponsor, or

contractor, inspection services during the

construction stage must be performed by a non-identity

of interest architect.

2\) Construction Inspection. The Inspecting Architect must:

a\. Review the contract documents (including large scale

drawings and shop drawings), specifications and

engineering reports for completeness and adequacy.

This is completed prior to start of construction.

Report all errors and omissions to the sponsor,

mortgagee, HUD and, if appropriate, the design

architect.

b\. Monitor the construction and determine whether it

complies with the contract drawings and specifications

and any specific conditions of the HUD MCC/MAR.

Report in writing any non-compliance, omissions and

deficiencies. Provide copies to the sponsor,

mortgagee and the HUD Field Office.

c\. Maintain an on-site log that provides a record of

inspections, work progress, findings, instruction and

deficiencies. AIA Document G711 may be used for the

log.

d\. Review change order request(s). HUD considers the

signed contract documents as binding. To be

acceptable, a proposed change must be due to

necessity, be an appropriate betterment, or qualify as

an equivalent. If the cost/value of the living units

(11-5) is affected, Form [HUD
91322](http://www.hudclips.org/sub_nonhud/cgi/pdfforms/91322.pdf) may
have to be revised by

HUD or the DE Lender.

e\. Provide all services by the Owner-Architect Agreement

(AIA Document B181), including an inspection of all

off-site construction for conformity with the terms of

the contract.

f\. Provide inspection certification (Appendix D, page

11-17D) including a Certificate of Substantial

Completion (AIA Document G704).

H. Survey. Prior to issuance of the Certificate of Substantial

completion, a survey is required by a licensed surveyor showing

the exact location of all on-site improvements, including all

water, sewer, gas and electric lines and mains, and all existing

utility easements. (A licensed engineer may provide an \"as

built\" improvement plan that locates all on-site improvements

including water, sewer, gas and electric lines and mains.)

Certification by the surveyor is required that the improvements

are entirely on the property and free of restriction lines and

easements.

I. Construction Warranty. The construction contract must provide

that the contractor will correct any defects due to faulty

materials or workmanship for:

1\) The entire project (excluding living units) one year from

the date of substantial completion.

2\) Individual living units, one year from the date of

occupancy or loan closing, whichever is first.

[]{#__RefHeading___Toc169057639 .anchor}**11-6. DEVELOPMENTS WITH
BUILDINGS UNDER CONSTRUCTION OR EXISTING LESS THAN ONE YEAR**.
\<[Top](#_top)\> Building(s) may already be built, under construction or

proposed. Unless there is a 10 year insured warranty for the

property, any building which is under construction or existing less

than one year will be limited to a 90 percent loan-to-value ratio.

Buildings within the development which are proposed and will be

inspected during construction as described in paragraph 11-5,

Proposed Construction, are eligible for the maximum loan-to-value

ratio.

A. The mortgagee/sponsor submits the following to the Field

Office.

1\) Letter requesting approval which contains description of

the project indicating type of condominium structure,

number of units and common facilities.

(11-6) 2) Location map;

3\) Recorded project plat, map and/or air lot survey which

adequately identifies units;

4\) Developer\'s general plan and schedule for development;

5\) All condominium legal documents (with attorney\'s

certifications);

6\) Proposed condominium association budget;

7\) Management agreement or proposed management plan;

8\) Current financial statement of the condominium project

(including reserves); and

9\) Minutes of last two association meetings if operational.

B. The Valuation Branch assigns a control number and notifies the

mortgagee/sponsor of the project number.

C. The Field Office reviews the exhibits and makes an on-site

inspection to determine acceptability of the site and location

of the project. See Appendix 22, Handbook 4265.1 for an example

of a check list which can be used for project approval. If the

documents and the location are acceptable, the mortgagee/sponsor

will be notified that appraisals may be requested.

D. The mortgagee may request appraisals for individual units or may

use the MCC/MAR procedure for buildings which are proposed or

have an insured 10-year warranty. The fee appraiser will not be

required to prepare a replacement cost estimate. The MCC/MAR or

conditional commitment/statement of appraised value will contain

the presale and owner-occupancy requirements.

E. The Loan to Value Ratio on individual buildings is based on the

following:

1\) Maximum Loan-to-value Ratio (97/95 percent)

a\. The building is proposed and will be inspected during

construction by a HUD fee inspector or an approved

architect, or

b\. The building is covered by a HUD accepted insured

10-year warranty plan (certification of completion is

required), or

(11-6) c. The construction of the building was completed over

one year ago.

2\) Low Loan-to-value Ratio (90 percent)

a\. The building is under construction and will not be

covered by a 10-year protection plan, or

b\. The construction of the building was completed less

than one year ago and is not covered by a 10-year

protection plan.

Note: In order to obtain a high ratio loan on buildings

within the Development where no construction has

started, the procedures for certification of plans and

specifications and inspections under proposed

construction must be followed. For buildings under

construction, the developer must submit one set of the

construction documents to HUD.

F. Certifications. Follow instructions for proposed construction,

paragraphs 11-5F and G.

G. Construction Inspections

1\) Proposed building - follow instructions for proposed

construction, paragraphs 11-5F and G.

2\) Under construction or completed less than one year

a\. single family type - final inspection by fee

inspector/appraiser

b\. multifamily type - final inspection of unit by

appraiser

H. Survey. Same as proposed construction, paragraph 11-5H.

I. Construction Warranty. Same as proposed construction,

paragraph 11-5I.

[]{#__RefHeading___Toc169057640 .anchor}**11-7. EXISTING CONSTRUCTION
(NON-OPERATING CONDOMINIUM ASSOCIATION)**. \<[Top](#_top)\>

Buildings were constructed as a condominium and construction has

been completed over one year; however, original units remain unsold

and the developer/sponsor may not have relinquished control of the

condominium to the homeowners.

(11-7) The project must not be subject to future expansion at the option
of

the developer. If the condominium documents or the development plan

indicate that additional units may be added to the condominium,

follow the processing instructions under paragraph 11-6.

A. The mortgagee/sponsor submits the following to the Field

Office:

1\) Letter requesting approval which contains a description of

the project;

2\) Location map;

3\) Recorded project plat, map and/or air lot survey which

adequately identifies units;

4\) Condominium documents (with attorney\'s certifications);

5\) Condominium association budget;

6\) Management agreement;

7\) Current financial statement of the condominium project

(including reserves);

8\) Minutes of last two association meetings if applicable; and

operational.

9\) Evidence of the completion of the project (including the

common elements by final municipal approval and occupancy

authorization.

B. The Valuation Branch assigns a control number and notifies

mortgagee/sponser of project number.

C. The Field Office reviews and makes an on-site inspection to

determine acceptability of the site and location of the project.

If the documents and the location are acceptable, the

mortgagee/sponsor will be notified that appraisals may be

requested.

D. The mortgagee may request appraisals for individuals units only.

E. The Loan to Value Ratio. Since the construction of the

building(s) is over one year, the units are considered eligible

for the maximum ratio loan.

F. A presale will be required and established by the local HUD

office. The presale is especially important in a completed

project whether the developer has been actively conducting a

(11-7) sales campaign and a large percentage of units remain unsold.

The marketability of the project should be carefully assessed

especially in projects two or three years old. Appraisals

should include comparables from competing projects and value

should not be based solely on sales by the developer.

[]{#__RefHeading___Toc169057641 .anchor}**11-8. EXISTING CONSTRUCTION
(OPERATING CONDOMINIUM ASSOCIATION)**. \<[Top](#_top)\> All

units and all common elements and improvements have been completed

and have been committed to a plan of condominium ownership for at

least one year prior to application for approval. The developer has

relinquished control of the association to the homeowners. The

condominium association may request approval for the project.

A. The mortgagee or Condominium Association submits the following

to the Field Office:

1\) Letter requesting approval which contains a description of

the project;

2\) All condominium legal documents (with attorney\'s

certification),

3\) Recorded plat, plan, survey, or map, including amendments,

of project;

4\) The project\'s annual income, expenses, and budget. The

reserve funds for commonly owned replacements must be

sufficient to meet current costs;

5\) Minutes of last two meetings of the homeowners

association;

6\) A report from management company, if applicable; and

7\) Certification from the association that the project meets

the owner-occupancy requirements established by the HUD

office. (Must not be lower than 51 percent.)

B. The project should not be approved if circumstances or

conditions exist that have a substantial adverse effect upon the

project or will be a contributing cause for the unit mortgage to

become delinquent. These circumstances or conditions include:

1\) Defects in construction;

2\) Substantial disputes, or dissatisfaction among the unit

owners concerning the operation, maintenance or management

of the project or the associations;

(11-8) 3) Disputes over the unit owner\'s respective rights,

privileges and obligations.

4\) Insufficient reserves and/or unrealistic operating budget.

C. Processing will follow the instructions for Existing

Constructions (Non-operating Condominium Association),

paragraph 11-7, B, C, D, E.

[]{#__RefHeading___Toc169057642 .anchor}**11-9 PROJECTS CONVERTED FROM
RENTAL HOUSING**: \<[Top](#_top)\> Units in a rental project

which was converted to condominium ownership may not be insured

until the project has been converted over one year. Conversion

takes place when all the legal documents establishing the

condominium have been recorded.

A. The one year restriction does not apply to:

1\) Rental projects in which the conversion was sponsored by a

bona fide tenants organization representing a majority of

the households in the project.

2\) Non-rental properties such as a school, church, or

warehouse converted to condominium; or

3\) A unit being sold to a purchaser who was a tenant in the

project at the time of the conversion.

B. Instructions for processing a converted project will follow

either the Existing Construction, Operating Condominium

Association, (paragraph 11-8) or Existing Construction,

Non-operating Condominium Association, (paragraph 11-7)

depending on whether the developer/sponsor still has unsold

units in the project. No project should be accepted for

processing unless the units in that project are eligible for

FHA insurance.

C. Eligibility is determined as follows:

1\) Condominium documents have been recorded over one year.

The project may be processed for approval and any buyer is

eligible to apply for an FHA-insured mortgage.

2\) Condominium documents have not been recorded over one

year.

a\. If the conversion is sponsored by a bona fide tenant

organization, the project may be processed and any

buyer would be eligible to apply for an FHA insured

mortgage.

(11-19) b. If a former tenant wishes to purchase a unit, the

project may be processed subject to the following:

1\. Only the former tenant is eligible to apply,

other purchasers may apply after the one year

limitation;

2\. The project must meet the presale and

owner-occupancy requirements before the former

tenant\'s mortgage may be insured;

3\. the tenant need not buy the same unit they

currently rent;

c\. If neither a or b applies, the project should not be

processed until the documents have been recorded over

one year.

[]{#__RefHeading___Toc169057643 .anchor}**11-10. APPROVALS BY THE
DEPARTMENT OF VETERANS AFFAIRS**. \<[Top](#_top)\> Condominium

projects which have been approved by the Department of Veterans

Affairs (VA) will require limited HUD review to verify that the

project is in compliance with statutes, regulations and policies.

The following instructions apply for an approval letter, a

Certificate of Reasonable Value (CRV) or a Master Certificate of

Reasonable Value (MCRV):

A. VA Letter 26-619 or VA project approval letter is required,

whenever possible. (An approval letter may no longer be

available for projects which have been approved for a

substantial period of time.) Any appropriate conditions

required by VA must be included as conditions of our conditional

commitment, firm commitment or DE approval.

If the approval letter does not indicate the type of project, a

brief description of the project is also required, i.e.,

proposed, existing, conversion and number of units.

B. A copy of the recorded legal documents establishing the

condominium (declaration, by-laws, amendments, etc.) must be

obtained for your files. No review is necessary. Additional

documents will be required as follows:

1\) Proposed or newly constructed projects:

a\. The recorded project plat or map,

b\. The proposed operating budget of the homeowners

association,

(11-10) c. The developer\'s general plan and schedule for

development,

d\. An Affirmative Fair Housing Marketing Plan for

projects consisting of five or more units.

2\) Existing project:

a\. The current financial statement and operating budget

of the condominium association, and

b\) The minutes of the last two meetings of the

association.

C. Perform an on-site visit to determine the acceptability of the

project and location. The extent of the review will be

determined by the Field Office based upon the individual

circumstances. For instance, older projects and conversions,

the overall maintenance, number of vacancies and adequacy of

mechanical equipment as well as location would be important

considerations. For projects which are proposed construction

and an MCRV has been issued, the review could be limited to

determining the acceptability of the location.

An on-site visit is optional for projects where the Field Office

receives the MCRV and the accompanying committee appraisal

(narrative appraisal). The Field Office would review the

narrative appraisal to determine if there are any environmental

problems which are inconsistent with our policies or

regulations. If there are no environmental problems noted in

the narrative appraisal, no on-site review is required. The

information in the narrative appraisal may also be used to

establish whether the units in the project will qualify for

97/95 percent loan-to-value ratio or will be limited to the 90

percent loan-to-value ratio.

D. Loan to value Ratio. CRVs or MCRVs issued for properties which

are proposed construction are eligible for the maximum

loan-to-value ratio only if the CRV is issued prior to start of

construction and the property is inspected during construction

by the VA or the property is covered by a HUD accepted 10-year

insured protection plan. Properties with a 10-year insured plan

require only a final inspection.

CRVs or MCRVs issued for properties which are under construction

or less than one year old and not covered by a 10-year warranty

will be limited to a 90 percent loan-to-value ratio.

(11-10) E. Conversions from Rental Housing. No approval letter, CRV or

MCRV will be accepted for a project which has been converted

from rental housing for less than one year unless converted by

a tenants organization. An individual application for mortgage

insurance, however, could be processed if the CRV had been

issued to a former tenant and the project had met the presale

and owner-occupancy requirements.

F. Presale Requirements. Projects which are proposed or under

construction must meet HUD presale requirements. In an

existing project where the developer is still marketing units,

evidence of presales is also required.

G. Owner-occupancy Requirements. All projects must meet HUD\'s

owner-occupancy requirement.

H. Any project comprising less than four units will not be

accepted. A CRV issued for a property in a two or three unit

condominium project will be rejected.

I. An FHA project number will be assigned to all VA approved

projects which are accepted and the project will be added to

the approved list. This list must be provided to the Direct

Endorsement lenders and fee appraisers.

J. Once a MCRV has been issued by the VA, HUD will not make \"spot

appraisals\" or issue a master appraisal report (MAR) or master

conditional commitment (MCC) on any units(s) covered by the

MCRV.

[]{#__RefHeading___Toc169057644 .anchor}**11-11. Approvals by Federal
National Mortgage Association (FNMA)**. \<[Top](#_top)\>

Proposed or newly constructed projects which have been approved by

FNMA may be accepted based upon HUD\'s review of the approval

documents.

A. The developer submits copies of the following documents:

1\) FNMA Form 1026 Application for Project Acceptance and the

supporting documents;

2\) FNMA Form 1027, Conditional Project Acceptance (if FNMA

placed any conditions on the project); and

3\) FNMA Form 1028, Final Project Acceptance

B. The Field Office reviews the information submitted and

determines whether any adverse conditions are noted.

C. An on-site review is optional and will depend on information

contained in the Field Office review of the documents and

knowledge of local conditions.

D. The loan-to-value ratio will be limited to 90 percent unless the

project is covered by a HUD accepted 10-year insured protection

plan. If covered by an approved insured 10-year protection

plan, a final inspection of the unit by an FHA fee inspector

will be required.

Sponsor/Builder Design Certification

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*
APPENDIX A

(Condominium Program)

Sponsor/Builder or Agent

I,
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
to the best of my knowledge,

belief and professional judgement, do hereby certify, for the purpose of

satisfying the requirements of 24 CFR, Part 234.27(a)(2)(iii), with
respect

to the following:

\(1\) The attached Construction Documents are for the building

described as follows:

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_1/

\(2\) The Construction Documents identified
as\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_2/

include my approval signature as the sponsor/builder

responsible for their preparation;

\(3\) The proposed construction, as described in these Construction

Documents, (a) is permissible under the applicable zoning,

building, housing, and other codes, ordinances or regulations

as modified by any written waivers obtained from appropriate

officials, and (b) complies with Minimum Property Standards

and other applicable standards, guidelines and criteria. 3/

Waivers of codes, etc., were obtained as
listed:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_4/

Date\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Signed\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

Sponsor/Builder

I, \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
Sponsor/Builder, hereby certify that

the construction documents submitted herewith have been reviewed by the

individual signing above as to whether such documents comply with the
HUD

requirements set forth in item 3/ of the footnote. I understand the

purpose of this certification is to induce the United States Department
of

Housing and Urban Development to issue mortgage insurance for units in

this building.

APPENDIX A

(Continued)

Sponsor/Builder\'s
Name\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Business
Address\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Telephone
Number\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

WARNING: Title 18 U.S.C. 1001, provides in part that whoever knowingly

and willfully makes or uses a document containing any false, fictitious,

or fraudulent statement or entry, in any matter in the jurisdiction of
any

department or agency of the United States, shall be fined not more than

\$10,000 or imprisoned for not more than five years or both. In
addition,

violation of this, or other, statutes may result in debarment and civil

liability for damages suffered by the Department.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

1/ List number and type of units, location of property, describe

property, etc.

2/ Identify construction documents including information normally found

in Title Block of drawings.

3/ a. Horizontal construction (units side-by-side), HUD Handbook

4910.1, Appendix K.

b\. Vertical construction (units over and under one another), HUD

Handbook 4910.1.

c\. Site grading and drainage guidelines, HUD Handbook 4145.1 REV-1,

Appendix 8.

4/ Identify attachment, if any.

DESIGN ARCHITECT\'S CERTIFICATION APPENDIX B

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

(Condominium Program)

I,
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
Registered Architect, to

the best of my knowledge, belief and professional judgement, do hereby

certify, for the purpose of satisfying the requirements of 24 CFR, Part

234.27(a)(2)(iii), with respect to the following:

\(1\) The attached Construction Documents are for the building

described as follows:

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_1/

\(2\) The Construction Documents identified
as\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_2/

include my approval signature as the architect responsible for

their preparation;

\(3\) The proposed construction, as described in these Construction

Documents, (a) is permissible under the applicable zoning,

building, housing, and other codes, ordinances or regulations as

modified by any written waivers obtained from appropriate

officials, and (b) complies with Minimum Property Standards and

other applicable standards, guidelines and criteria. 3/

Waivers of codes, etc., were obtained as
listed:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_4/

Signed\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Architect\'s
Name\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Business
Address\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Telephone
Number\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

License Number\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
State\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Seal

APPENDIX B

(Continued)

WARNING: Title 18 U.S.C. 1001, provides in part that whoever knowingly

and willfully makes or uses a document containing any false, fictitious,

or fraudulent statement or entry, in any matter in the jurisdiction of
any

department or agency of the United States, shall be fined not more than

\$10,000 or imprisoned for not more than five years or both. In
addition,

violation of this, or other, statutes may result in debarment and civil

liability for damages suffered by the Department.

1/ List number and type of units, location of property, describe

property, etc.

2/ Identify construction documents including information normally found

in Title Block of drawings.

3/ a. Horizontal construction (units side-by-side), HUD Handbook

4910.1, Appendix K.

b\. Vertical construction (units over and under one another), HUD

Handbook 4910.1.

c\. Site grading and drainage guidelines, HUD Handbook 4145.1 REV-1,

Appendix 8.

4/ Identify attachment, if any.

BUILDER\'S CONSTRUCTION CERTIFICATION APPENDIX C

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

(Condominium Program)

I, \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
Builder, to the best of my knowledge,

belief and professional judgement, do hereby certify, for the purpose of

satisfying the requirements of 24 CFR, Part 234.27(a)(2)(iii), with

respect to the following:

\(1\) I was responsible for the construction of the building described

as follows:

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_1/

\(2\) The building has been completed in conformance with the

certified construction documents identified
as\_\_\_\_\_\_\_\_\_\_\_\_\_\_,2/

which were the subject of a certification to HUD by the

Sponsor/Builder or the Design Architect; the exterior grading

and drainage complies with guidelines in HUD Handbook 4145.1

REV-1, Appendix 8.

\(3\) There are no defects or deficiencies in the building except for

ordinary punchlist items or incomplete work awaiting seasonal

opportunity.

\(4\) The building has been constructed in accordance with applicable

state and local laws, zoning, building, housing and other codes,

ordinances or regulations, as modified by written waivers

obtained from appropriate officials.

\(5\) Certificate of Occupancy or similar approval from the local

jurisdiction is attached.

Waivers of codes, etc., were obtained as
listed:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_3/

Changes in the construction documents were approved as
listed:\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_3/

Signed\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

APPENDIX C

(Continued)

Builder\'s
Name\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Business
Address\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Telephone
Number\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

WARNING: Title 18 U.S.C. 1001, provides in part that whoever knowingly

and willfully makes or uses a document containing any false, fictitious,

or fraudulent statement or entry, in any matter in the jurisdiction of
any

department or agency of the United States, shall be fined not more than

\$10,000 or imprisoned for not more than five years or both. In
addition,

violation of this, or other, statutes may result in debarment and civil

liability for damages suffered by the Department.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

1/ List number and type of units, location of property, describe

property, etc.

2/ Identify construction documents including information normally found

in Title Block of drawings.

3/ Identify attachment, if any.

INSPECTING ARCHITECT\'S CERTIFICATION APPENDIX D

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

(Condominium Program)

I,
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
Registered Architect, to

the best of my knowledge, belief and professional judgement, do hereby

certify, for the purpose of satisfying the requirements of 24 CFR, Part

234.27(a)(2)(iii), with respect to the following:

\(1\) I was responsible for the inspection of construction of the

building described as follows:

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_1/

\(2\) I have no personal interest, present or prospective, in the

properties, applicant(s), subcontractor(s), or builder.

\(3\) The inspections were performed by me or under my supervision

with the frequency and thoroughness required by generally

accepted standards of professional care and judgement.

\(4\) The building has been completed in conformance with the

certified construction documents identified
as\_\_\_\_\_\_\_\_\_\_\_\_\_\_,2/

which were the subject of a certification to HUD by the Design

Architect; the exterior grading and drainage complies with

guidelines in HUD Handbook 4145.1 REV-1, Appendix 8.

\(5\) There are no defects or deficiencies in the building except for

ordinary punchlist items or incomplete work awaiting seasonal

opportunity.

\(6\) The building has been constructed in accordance with applicable

state and local laws, zoning, building, housing and other codes,

ordinances or regulations, as modified by written waivers

obtained from appropriate officials.

\(7\) Certificate of Substantial Completion (A.I.A. Document G704) is

attached.

Waivers of codes, etc., were obtained as
listed:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_3/

Changes in the construction documents were approved as
listed:\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_3/

Signed\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

APPENDIX D

(Continued)

Architect\'s
Name\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Business
Address\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Telephone
Number\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

License Number\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
State\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Seal

WARNING: Title 18 U.S.C. 1001, provides in part that whoever knowingly

and willfully makes or uses a document containing any false, fictitious,

or fraudulent statement or entry, in any matter in the jurisdiction of
any

department or agency of the United States, shall be fined not more than

\$10,000 or imprisoned for not more than five years or both. In
addition,

violation of this, or others may result in debarment and civil liability

for damages suffered by the Department.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

1/ List number and type of units, location of property, describe

property, etc.

2/ Identify construction documents including information normally found

in Title Block of drawings.

3/ Identify attachment, if any.

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

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\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

FORM HUD 92258, LETTER OF ACCEPTANCE FOR CONDITIONAL COMMITMENT

ON INDIVIDUAL OR GROUP APPLICATION FOR PROPOSED CONSTRUCTION

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[]{#__RefHeading___Toc169057645 .anchor}**SECTION 2. - PLANNED UNIT
DEVELOPMENTS**.

[]{#__RefHeading___Toc169057646 .anchor}**11-12. PLANNED UNIT
DEVELOPMENT**. \<[Top](#_top)\> A residential development shall be

processed as a planned unit development (PUD) if it contains,

within the overall boundary of the subdivision, common areas and

facilities owned by a homeowners association to which all

homeowners must belong and to which they must pay lien-supported

assessments. The organization, preliminary planning, land lisps,

and processing through the issuance of the preconstruction analysis

letter (HUD Form 92258) and Conditional Commitments for planned

unit developments are described in HUD Handbooks 4135.1, 4140.1 and

4140.2.

A. Definition of the Property to be Appraised. Unique valuation

problems are presented by this type of development. It is

composed partly of dwellings on individually-owned lots and

partly of commonly-owned elements of the development. The

property to be appraised consists of the fee title to the real

estate represented by the lot and the improvements thereon plus

the benefits arising from ownership of an interest in the

homeowners association. The benefits accruing from the

commonly-owned areas and facilities will be reflected in the

valuation of the individual lots and homes.

1\) Each property owner automatically becomes a member of the

association and the property is subject to assessment by

the association for maintenance of the common areas and for

other stipulated purposes which may include maintenance of

the structural exterior and grounds.

2\) In PUDs, individual yard areas may be reduced to permit

more common areas which are owned and maintained by

property owners or homes association.

3\) Examples of commonly-owned elements are an internal park

network abutting homesites in a townhouse-on-the-green

superblock, or a cluster arrangement of lots with adjoining

commonly-owned areas.

B. Processing Proposed Construction PUDS.

1\) Approach to Value. The approach to value of the single

family residential properties composing a planned unit

development is the same as in other types of development,

but frequently, by reason of the uniqueness of such a

development, no valid comparisons are available which will

pinpoint either the probable market price or rental value.

(11-12) In these instances, greater reliance than usual must be

placed on the replacement cost estimate. Presumably, the

planned unit development has received the benefits of more

expert and careful planning and design than the usual

subdivision development. The determination of feasibility

is predicated upon sufficient demand to absorb the units, a

high degree of appropriateness with a price range for the

individual units that will provide a competitive edge in

the market, and a high degree of appeal arising from the

aesthetic and recreational features of the development. If

adherence to these principles is maintained, the

replacement cost estimate would be an excellent indication

of the value.

2\) Estimate of Replacement Cost. The Replacement Cost of

Improvements, Miscellaneous allowable Costs, and Marketing

Expense are all estimated in the same manner as in any

Section 203(b) case. The Estimate of Market Price of an

Equivalent Site, however, requires the consideration of the

following additional factors not usually encountered in the

ordinary appraisal:

a\. Size of Individual Sites. The parcel of real estate

may be considerably smaller in size than found in

typical residential developments, the environment may

be uniquely different, and the benefits accruing to

ownership may include unique rights to the use of the

common areas and enjoyment of the recreational

facilities which are for the exclusive use of members

of the homeowners association.

b\. Method of Site Appraisal. If sales have been made of

properties in similar developments in the area, direct

comparisons are possible and the comparative approach

would be valid. If there are no similar developments,

there is no way to draw a comparison to the very

dissimilar typical, single-family residential

property, and more emphasis will be placed on the cost

to produce a similar site with similar facilities and

benefits.

c\. Method of Pro Rata Supportable Cost. In addition to

all the factors composing the production costs of

sites outlined in previous paragraphs, the pro rata

supportable cost of all the improvements, facilities,

and land owned by the homes association is distributed

to each site in the development. Approached from a

slightly different aspect, the total supportable raw

land cost (by comparison) of the entire development,

including building sites, common areas, streets, etc.,

(11-12) is added to the cost of all utility installations,

street improvements, engineering, subdivision costs,

carrying charges, overhead and profits, and all

landscaping, building improvements, and other

facilities to be built on the common areas. This

total is spread over all the building sites in

accordance with their relative desirability and

utility.

d\. Additional Amenities. An estimate to adequately

reflect the additional amenities of the common areas

shall be shown in the replacement cost on the Marshall

and Swift Form 1007, line 32, by crossing out

\"landscaping cost\" and entering \"additional

amenities.\" The total of the land value and

additional amenities should adequately reflect the

true value of this site taking full cognizance of all

special features attributable to this type of

development.

e\. Inflated Land Prices Because of Density. If homes in

a planned unit development are to compete successfully

with other homes, the price of raw land should not be

inflated because of a proposed higher density use. If

inflated land prices are permitted, the planned unit

development house may lose a major part of its

competitive price advantage. Cluster planning of

detached homes or use of row houses should also result

in lower development costs from savings on street

improvements, utility lines, and building construction

costs.

f\. Maintenance Charges and Value Determination. In some

planned unit developments, the advantages of cluster

arrangements and the amenities thus produced are

somewhat negated by high maintenance charges. If, for

example, the cluster arrangements require the use of

privately maintained streets and rights of way, it may

have an adverse effect on marketability relative to

other sites located on publicly maintained streets.

The appraiser must measure these comparative

advantages and disadvantages and reflect these market

reactions in the value of the property.

C. Processing Existing Planned Unit Developments (PUDs). A

critical factor to be considered in any appraisal is whether a

mandatory lien supported assessment will exist against all

properties in the subdivision. When a property is encumbered by

(11-12) payments to a homeowners association, knowledge of the

circumstances of this obligation is vital for a determination

of acceptability of the property as security for an insured

mortgage.

1\) The following guidelines shall be used when processing the

first existing property that is subject to a homeowners

association with mandatory assessments (PUDs) which was not

previously processed by HUD, VA or FmHA. The application

shall be submitted to the Field Office with the following

documentation:

a\. Subdivision location map.

b\. Subdivision plat approved by the local governing

authority.

c\. Master plot plan which includes block and street

grading and drainage information.

d\. Affirmative Fair Housing Marketing Plan.

e\. Documentation concerning special hazards such as

noise, flooding, seismic, etc., where applicable, and

any other conditions of certification.

NOTE: HUD must comply with the Executive Orders and

related environmental laws cited in 24 CFR Part

50.4.

f\. A copy of the applicable legal documents concerning

the home-owners association and certification by an

attorney that they are in compliance with HUD\'s legal

requirements. (See Handbook 4135.1, REV.2,

Appendix 9).

g\. A copy of the protective covenants.

h\. A copy of the recorded plat which indicates proper

dedication of the common areas for use by the

homeowners.

i\. A copy of the annual budget of the association, the

annual assessment to each property owner and the

amount which is established as a reserve for

replacement. The above documentation shall be

reviewed for completeness in the valuation branch

prior to assigning a case number to the application.

Incomplete submissions shall be returned to the

mortgagee as preliminary rejects.

(11-12) 2) The Chief Appraiser shall be responsible for strict

adherence to the following procedure when existing cases

are received for processing in PUDs which have not been

previously processed by HUD. When the first case is

received:

a\. The property shall be appraised as any other existing

case.

b\. All cases processed in PUDs shall be forwarded to the

Field Office or DE mortgagee for approval and issuance

of a commitment/statement of appraised value.

[]{#__RefHeading___Toc169057647 .anchor}**11-13. LEGAL DOCUMENTS**:
\<[Top](#_top)\> For suggested legal documents, see HUD Handbook 4135.1,
REV. 2, Appendix 9.

[]{#__RefHeading___Toc169057648 .anchor}**11-14. VA-CRV CONVERSIONS**.
\<[Top](#_top)\> Requests for conversion of VA-CRV\'s in planned

unit developments should be accepted and processed without

Departmental review of the legal documents. However, HUD must

independently assure compliance with environmental issues.

Moreover, if the Department of Veterans Affairs has issued an MCRV

or CRV for a PUD whose documents do not comply with HUD

requirements, and this discrepancy comes to HUD\'s attention, HUD is

not obliged to give recognition to the CRV and may require the

matter to be resolved before approving an application with respect

to a property in that PUD.

Suggested format:

LEGAL CERTIFICATION FOR

(INSERT NAME)

PLANNED UNIT DEVELOPMENT

I am an attorney licensed to practice in the State of
\_\_\_\_\_\_\_\_\_\_\_\_.

I am not an employee, principal or officer of (Name of Developer or

Sponsor). I hereby certify that the legal documents for the above
Planned

Unit Development are in compliance with all of the following HUD legal

requirements.

I. Articles of Incorporation.

1\. Every person or entity who is a record owner of any lot is

entitled to membership and voting rights in the association.

Membership is appurtenant to, and inseparable from, ownership of

the lot.

2\. If the association is dissolved, the assets shall be dedicated

to a public body, or conveyed to a nonprofit organization with

similar purposes.

3, Amendment of the Articles of Incorporation requires the approval

of at least 2/3 vote of the lot owners.

4\. Annexation of additional properties, mergers and consolidations,

mortgaging of Common Area, dissolution and amendment of the

Articles, requires prior approval of HUD/VA as long as there is

a Class B membership.

II\. Declaration of covenants.

1\. A legal description of the Planned Unit Development is

contained.

2\. All lots in the Planned Unit Development are subject to the

covenants.

3\. Every owner has a right and easement of enjoyment to the common

area, which is appurtenant to the title to the lot.

4\. The lien of any assessment is subordinate to the lien of any

first mortgage.

5\. Mortgagees are not required to collect assessments.

6\. Annexation of additional properties, dedication of Common Area,

and amendment of this Declaration of Covenants, Conditions and

restriction, requires HUD/VA prior approval as long as there is

a Class B membership.

7\. Failure to pay assessments does not constitute a default under

an insured mortgage.

8\. The covenants assure lot owners of automatic membership and

voting rights in the association.

9\. Each lot owner is empowered to enforce the covenants.

10\. The approval of at least 2/3 of the lot owners is required to

amend the covenants.

11\. The common area cannot be mortgaged or conveyed without the

consent of at least 2/3 of the lot owners (excluding the

developer).

12\. If ingress or egress to any residence is through the common

area, any conveyance or encumbrance of such area is subject

to lot owner\'s easement.

13\. There is no provision in the covenants which conflicts with the

HUD requirement that the common area shall be conveyed to the

association free and clear of all encumbrances before HUD

insures the first mortgage in the Planned Unit Development.

14\. Absolute liability is not imposed on lot owners for damage to

common area or lots in the Planned Unit Development.

15\. The Class R membership (Declarant\'s weighted vote) ceases and

converts to Class A membership upon the earlier of the

following:

A. 75% of the units are deeded to homeowners.

B. On \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, 19\_\_\_.

III\. By-Laws

1\. The By-Laws are consistent with the Articles of Incorporation

and Declaration of Covenants.

2\. HUD/VA has the right to veto amendments while there is a Class B

membership.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Attorney

#  SECTION 3. SINGLE FAMILY COOPERATIVE PROGRAM - SECTION 203(n)

#  

[]{#__RefHeading___Toc169057650 .anchor}**11-15. SECTION 203(n)**.
\<[Top](#_top)\> This program is available to assist a purchaser in

acquiring a Corporate Certificate (stock certificate or membership

certificate), in a cooperative housing project which is covered by

a blanket mortgage insured under the National Housing Act. The

purchaser assumes the responsibility for the monthly charges due

the cooperative which are attributable to the dwelling unit the

owner of the Corporate Certificate is entitled to occupy, and can

finance a portion of the seller\'s equity with an insured mortgage.

A. The seller\'s equity is the difference between the outstanding

principal balance on the project mortgage attributable to the

dwelling unit the owner of the Corporate Certificate is

entitled to occupy and the fair market value of the dwelling

unit, assuming it was being sold on the open market.

B. As in the other single family mortgage insurance programs, the

equity financing loan will be funded by a HUD-approved

mortgagee, and the mortgage will be insured by the Department.

Processing instructions are found in HUD Handbook 4240.3.

#  CHAPTER 12. MISCELLANEOUS

[]{#__RefHeading___Toc169057652 .anchor}**12-1. VALUATION INSTRUCTIONS
FOR SPECIAL PROBLEMS AND PROCEDURES**. \<[Top](#_top)\>

A. General. The purpose of this section is to promulgate

instructions to assist the appraiser in the solving of special

problems. It also contains valuation information relating to

HUD policy that requires unusual or special processing methods.

B. Difficult Market Comparisons. HUD Form 92019 Estimate of Market

Price by Comparison, provides a format that permits an orderly

graphic analysis of the complex market data. The form will he

used at the discretion and direction of the chief appraiser in

the analysis of disputed appraisals and the training of both

staff and fee panel appraisers in the use of the comparison

approach to value.

C. Difficult Physical Problems. A structural, sanitary

engineering, or similar complex problem that requires a

specialized examination may be returned to the Field Office or

to the Direct Endorsement mortgagee with a memorandum that

explains the condition which precludes completion of the

processing. The appraiser may telephone the Field Office to

discuss the problem and to request guidance when the matter in

question can be handled by phone. An appraiser shall not be

required to process any case without assistance when, in his/her

judgment, assistance from the Field Office is required in order

to assure quality processing.

D. Properties in Resort and Recreational Areas. The constant

increase in the formation and growth of resort areas throughout

the country and the increase in use of residential properties in

such areas for all year use (or for more than seasonal use) has

made the application of proper valuation considerations in such

communities increasingly more important.

(12-1) 1) Eligibility Criteria. It is possible that the term \"resort
and

recreational areas\" often leads to general and incorrect

assumptions. The fact that an area contains natural attributes

that contribute to recreation or vacation purposes does not

necessarily remove such areas from use and desirability by

homeowners or multifamily tenants who are interested in year

round occupancy. Obviously, certain kinds of resort areas and

certain types of housing are not acceptable for mortgage

insurance consideration. For instance, a vacation or resort

area that can only be used for a particular season or for a

particular type of recreation and is largely abandoned at other

times would not be acceptable. Properties not suitable for year

round occupancy, regardless of the area, are not acceptable.

a\. Areas and communities that have year round amenities

and use are not ineligible merely because they have a

seasonal influx of vacationers. Homes or apartments

may be acceptable if they are livable the year round

even though many such homes are occupied seasonally by

their owners or tenants.

b\. Favorable consideration should be given to proposals

involving primary or secondary homes of permanent

character in localities where residents are both year

round and seasonal. Community facilities, utilities,

shopping and other necessities and amenities must be

present as required, to produce an acceptable rating

of location. Such homes must be readily marketable

for year round occupancy. There should be no

requirement as to the minimum length of occupancy by

the owner or tenant any more than such requirements

would be imposed in nonresort areas. The important

criteria would be suitability for year round use,

purchase or rental demand on that basis, and

individual ability to pay.

2\) Market Depth. In an area having all year amenities and

use, the Area Economist should be requested to determine

not only the market associated with the normal growth, but

also the demand on a year round basis which is affected by

seasonal occupancy. Where it can be determined that a

portion of this demand has sufficient stable

characteristics to warrant its inclusion in the total

market projection, then to this extent, it should be

considered in the underwriting process.

(12-1) 3) Rental Properties. In appraisals requiring gross rental

income capitalization the customary projection of the

monthly rentals obtainable on an annual lease should be

used. No difficulty should be encountered here or in

finding and applying either the applicable gross rent

multiplier or rates. Rentals for \"seasons\" are considered

only for their influence upon rates for annual occupancy.

The unit which is susceptible to this seasonal subletting

may produce a higher annual gross than another equal

property that has no seasonal demand. The higher rental

will have its effect upon value.

4\) Location Analysis. Those features that affect the

marketability and desirability of sites, as set forth in

the location analysis, must be objectively analyzed

notwithstanding any resort or recreational aspects commonly

associated with the area but not exclusive of such

characteristics. Predominantly commercial or business

locations, present or prospective, or locations subject to

noise or other influences adversely affecting the use and

enjoyment of the typical owner or occupant should be

avoided, with due consideration of the levels of acceptance

typical of the area.

a\. The site must be compared with all locations in the

housing market area which are improved with, or

appropriate for, structures that offer accommodations,

and amenities similar to the dwelling under

consideration. Such comparisons are not limited to

other locations having seasonal or semi-permanent

attributes but would include all competitive sites

within the housing market area that offer all or many

of the same amenities.

b\. The Location Analysis, must reflect accurately the

attitude of the typical purchaser toward the

environmental influence surrounding the resort area

site.

[]{#__RefHeading___Toc169057653 .anchor}**12-2. APPRAISAL OF ACQUIRED
PROPERTIES**. \<[Top](#_top)\>

A. When requested by the Housing Management Division, the Valuation

Branch will assign a fee panel or staff appraiser to prepare an

appraisal report setting forth the value and condition of

property to assure the most expedient, orderly disposal of a

P.D. property. If a fee panel appraiser is used, the Housing

Management Division will be responsible for payment of the

appraiser\'s fee.

1\) Fair Market Value. The value to be reported will be the

Fair Market Value \"as-is.\" In addition, the appraiser will

identify and estimate the costs of the repairs needed to

bring the property up to the Minimum Property Standard

(MPS) for Existing Housing - One to Four Family Living

Units (HUD Handbook 4905.1).

The appraiser will prepare list of repairs, including cost

estimates and the total costs of repairs. Cosmetic and

other non MPS repairs will be excluded from this list.

The value will represent the best price obtainable free and

clear of any assessments, liens, or encumbrances within a

reasonable time if properly exposed to the market. It

contemplates the willing, fully informed, and able

purchaser-seller relationship with complete absence of

duress.

2\) Best Price Obtainable. \"Best price obtainable\"

is the price that will contribute to orderly turnover at as

rapid a rate as is compatible with the market generally

prevailing in the community. The price should produce a

sale within a reasonable time assuming the property will be

suitably exposed to the market. This, of course, does not

imply that the price found will enable the liquidation of a

large group of properties within an unreasonably short

period of time.

(12-2) 3) Appraiser Recommendations. The appraiser should be fully

aware that in completing the appraisal report he/she is

recommending the best program to follow to bring maximum

recovery within a reasonable period of time. The repairs

or rehabilitation, the best estimate of the cost of

repairs, and the estimate of value \"as is\" will all be part

of the recommendations. If the appraiser determines that

the property is not eligible for an insured mortgage,

he/she should recommend only those repairs which are

necessary to protect the property from further

deterioration until such time as an \"as is\" sale for all

cash or on strong terms can be consummated.

a\. If the property is in good condition for ready sale

the appraiser may value the property \"as is,\" in its

present condition subject only to cleaning, clearing

debris, trimming lawns, checking the plumbing, etc.

The appraiser will, under those conditions, always

assume a reasonable expenditure for these minor items.

In such a case the appraiser would recommend it be

sold with HUD mortgage insurance.

b\. If a property should need \$3,000 or less in repairs in

order to meet the Minimum Property Standards for

Existing Housing, the appraiser should recommend that

the property be sold with HUD mortgage insurance along

with a repair escrow established to ensure completion

of the repairs.

c\. If a property which, in its present condition, fails

to qualify for either of the foregoing, the appraiser

should recommend that it be offered for sale without

mortgage insurance or rehabilitated under Section

203(k).

[]{#__RefHeading___Toc169057654 .anchor}**12-3. CLAIMS WITHOUT
CONVEYANCE OF TITLE (CWCOT)**. \<[Top](#_top)\>

A. General. For all mortgages for which a conditional commitment

to insure was issued, or under the Direct Endorsement program

where the property appraisal report was signed by the

Underwriter on or after November 30, 1983, mortgagees may file

(12-3) claims for insurance benefits on these mortgages without

conveying title to HUD. Mortgagees may also utilize these

procedures for mortgages insured prior to the above dates at

their option.

B. Appraisal Procedures. Where the residence is vacant or

non-owner occupied, mortgagees shall identify vacant homes and

non-occupant owner(s) through sources such as loan origination

files, property inspections and collector reports. Presuming

that these conditions exist, the lender must take the following

steps to obtain an appraisal report:

1\) Call the Valuation Branch Assignment Clerk in the local HUD

Office which has jurisdiction over the property to obtain

the name of a fee appraiser or HUD staff person, if

available, to perform the appraisal.

2\) Call the assigned appraiser to schedule the appraisal.

3\) Forward to the fee appraiser a completed Application for

Property Appraisal and Commitment, Form HUD-92800, and a

Uniform Residential Appraisal Report (URAR). The mortgagee

must stamp the top of the Form HUD-92800, \"PROPERTY IN

FORECLOSURE.\" This statement will serve as a \"flag\" to the

appraiser as well as the local HUD office as to the

disposition of the appraisal report.

C. UD Office Action.

1\) When the mortgagee calls the local HUD Office for

assignment of a fee appraiser from the panel of approved

fee appraisers, or HUD staff, if available, the Valuation

Branch must:

a\. Make an exception for these properties in foreclosure

by accepting telephone assignments if the Field Office

normally requires mortgagees to submit written

requests for assignments of appraisers and case

numbers.

b\. Determine whether to use HUD staff or assign a fee

appraiser; and

c\. Provide the name of a fee appraiser or HUD staff

person, if available, to perform the appraisal.

If the mortgagee has any problem in promptly arranging for the

appraisal, it will call the local HUD Office, Valuation Branch.

If necessary, HUD may assign another appraiser.

(12-3) NOTE: In areas where a pre-foreclosure appraisal must be made by

an independent appraiser such as one employed by the

Sheriff\'s Office, the mortgages shall submit the appraisal,

if it is obtainable, along with the HUD-91022 in lieu of

requesting a HUD-approved fee appraiser.

D. Valuation Branch.

1\) When the mortgagee calls for an appraiser assignment, the

Receiving/Assignment Clerk will assign the case into CHUMS

with its old case number and assign an appraiser from the

panel of approved fee appraisers or use a HUD staff person

if available. Field Offices should use their staff

appraisers when available since this presents an

opportunity to maintain staff appraisal skills and for

purposes of cost efficiency.

2\) In the event that the appraiser is unable to enter the

property, the best estimate of value possible will be made,

based upon an exterior review, tax records, a comparison of

comparable properties and other available information. The

estimate of value should reflect the property in its \"As

Is\" condition. If appropriate, the appraiser must

indicate in the report that the property could not be

entered and identify the sources employed in making the

estimate of value.

3\) Upon completion of the appraisal or estimate of value, the

appraiser will send the report to the Valuation Branch

where it will be date stamped, logged into CHUMS and desk

reviewed. The desk review will be conducted by Valuation

staff. The Valuation Branch will then immediately

handcarry the appraisal report to the Single Family Loan

Management Branch. Expeditious handling of the appraisal

report must be maintained to insure the success of the

CWCOT process.

4\) Should the mortgagee wish to cancel the appraisal request

before the appraisal is done, the mortgagee will notify

both the Valuation Branch and the appraiser of the

cancellation. The Valuation Branch will enter the

cancellation into CHUMS. Also the mortgagee shall confirm

such action via letter to the SF Loan Management Branch

which will cancel further processing of the Form

HUD-91022.

(12-3) 5) Those appraisals or estimates of value are good for six

months. If a new or updated appraisal or estimate of value

is needed, the mortgagee will again contact the Valuation

Branch for a new appraiser assignment following the same

time requirements.

E. If the mortgagor reinstates the mortgage after foreclosure has

been instituted, the mortgagee will:

1\) Contact the fee appraiser to cancel the appraisal, or if

\"HUD staff\" was assigned, notify the HUD Valuation Branch,

and

2\) Advise the local HUD office SF Loan Management Branch by

telephone and follow up with a letter verifying such

action. The SF Loan Management Branch must file this

letter with the
[HUD-91022](http://www.hudclips.org/sub_nonhud/cgi/pdfforms/91022.pdf).

[]{#__RefHeading___Toc169057655 .anchor}**12-4. PROPERTIES ENCUMBERED BY
EASEMENTS, RESTRICTIONS AND RESERVATIONS**. \<[Top](#_top)\>

When the property to be purchased is encumbered by covenants running

with the land, easements, restrictions, or reservations, the effect

on the value resulting from these limitations must be ascertained.

A. Surface and Subsurface Easements. This is the term applied to a

right or privilege that one person has in the land of another.

Basically, easements are a means of providing convenient use for

others, without excessive dilution of the property rights of the

owner. Those most commonly encountered in residential

transactions involve joint driveways, access to water supply,

drainage, pipelines for gasoline and natural gas, and public or

private utilities.

1\) The appraiser must deal with property so encumbered on an

individual basis. His estimation of the amount the

property burdened by the easement will suffer must be based

on the degree and quantity of the rights released.

2\) Customs, attitudes, and prevalent practices in a community

have direct bearing on the monetary importance to be

attached to easements by the appraisers.

(12-4) 3) It is possible that a property by reason of an easement may

be subject to being used by persons other than the owner to

such an extent and in such a manner that its value as a

residential property is seriously affected. Under such

conditions determination must be made whether the property

is eligible as security.

B. Avigation Easements. The general increased volume of air travel

has made the problem of noise in take-off and landing zones and

its effect on residential properties located therein more

significant. (See also paragraph 4-25 A, B, and C)

1\) An avigation easement grants the rights to use and/or

control air space above property to someone other than the

owner of the land. It impairs full use and enjoyment by

the fee owner of his property and in effect is little

different from a surface or sub-surface easement. The

appraisal must reflect the decline, if any, in value in the

market attributable to the effect of such encumbrance.

Each case must be considered and analyzed on its own

merits.

2\) The avigation easement will deprive the fee owner of the

right to permit structures, trees, poles, or any other

impediments to extend above a specified plane above the

property and will convey to the grantee certain prescribed

rights to the use of the air above this height. The

distance agreed upon above the ground may or may not vary.

This plane may be parallel to the ground or may be at a

tangent. The closer to the ground that this plane is

drawn, the greater will be its adverse effect on the value

of the fee.

3\) Properties subject to avigation easements must be checked

to ascertain their eligibility under outstanding noise

guidelines.

(12-4 C. Reservation of Leases of Oil and Mineral Rights.

The appraiser need not be concerned with the fact that ownership

of the fee is separated from ownership of oil or mineral

deposits since the valuation of the property is based entirely

upon the benefits which will accrue to the typical purchaser for

residential uses. The degree to which the residential benefits

may be impaired or the property damaged by the exercise of the

rights set forth in the oil or mineral lease as well as those

applicable to neighboring properties must be considered.

1\) Consideration should be given to:

a\. The infringement on the property rights of the fee

owner caused by the rights granted by the reservation

or lease.

b\. The hazards, nuisances, or damages which may arise

therefrom. (See also paragraph 4-26)

c\. The hazards, nuisances, or damages which may accrue to

the subject property from exercise of reservation or

lease privileges on neighboring properties.

2\) The extent to which the property rights of the owner of the

fee is affected by a mineral or oil reservation or a lease

of subsurface areas will vary in accordance with the

privileges reserved in the instrument. In one instance the

privileges may be only to remove subsurface deposits by

directional exploration from some area outside of the

subject plot. In another instance the privilege may be

complete ingress and egress, to explore from any surface

area of the plot, to store equipment, or make installation

thereon. In the former case, depending on the proximity of

exploration area and the attitude of the local market, it

is possible that there would be little or no adverse effect

on value. In the latter case, the effect on the property

rights of the owner of the fee is such that the value of

the property for residential use may be destroyed.

3\) In mineral areas the problem may be one of subsidence from

directional mining. The extent of the hazard is determined

by the past history of such operations, a knowledge of the

extent of the mining, and the depth and the subsurface soil

structure.

4\) In oil-producing areas, the hazards and nuisances may arise

from the drilling operation, ingress and egress, storage,

pipeline transportation, danger of fire or explosion and

(12-4) danger from gusher wells. The effect of such nuisances,

hazards, or damages on the subject property would be

determined by their proximity and their intensity and

attitude of the local market. In an \"oil conscious\" area a

situation may be acceptable which would not be acceptable

in an area where gas oil exploration was a minor factor in

the area\'s economy. (See also paragraph 4-22)

D. In the case of new subdivision proposals it may be possible to

suggest certain restrictions to the developer-owner of the fee

that will materially lessen risk if he desires to retain the

mineral or oil rights. Where a mineral, oil or gas reservation

is retained, an agreement may be obtained limiting the

exploration area to one undeveloped part of the tract, providing

for directional drilling, and restricting against ingress and

egress across individual residential lots. In some cases it may

be necessary to modify outstanding covenants or obtain

protective covenants on neighboring land uses.

Summary. Easements, reservations or restrictions such as discussed

in this section may be involved in mortgagees\' requests for waiver

of objection to title to the mortgaged premises. Such requests are

processed as outlined in HUD Handbook 4170.1. The granting of a

waiver of objection to title appears to imply also a waiver of

objection to the physical condition of any property resulting from

the exercise of the rights created by the encumbrance.

Consequently, the possibility of any hazards, nuisances or damages

emanating from that source should be carefully evaluated before

granting the waiver.

[]{#__RefHeading___Toc169057656 .anchor}**12-5. MORTGAGE CREDIT REQUESTS
FOR APPRAISAL**. \<[Top](#_top)\> The Mortgage Credit Section

may request in estimate of value on property which is being accepted

by the seller as part of the purchase price. This is done in order

to establish the equivalent amount of cash which is being paid for

the property on which a commitment is to be issued. With the

request, the Mortgage Credit Section will furnish the trade-in price

which is being allowed for the property by the seller. Such

requests will be treated as informal appraisal assignments. A

complete appraisal report will not be required. A memorandum type

report will suffice. In such a case, a detailed description of

property and neighborhood, ratings, operation expense data,

supporting sales data, and replacement cost estimates will not be

required.

A. Only the following need be furnished:

1\) Address of property (including city or town).

(12-5) 2) Number of rooms, bedrooms, and baths.

3\) Garage or carport facilities.

4\) Brief statement as to conformity or any major deficiency

having a bearing on value.

5\) Estimate of Market Price Obtainable (exclusive of Closing

Costs).

B. Closing Costs will not be added at any point on an appraisal of

this type. Although the report may be kept to the briefest

terms, the appraiser will make an estimate and draw sufficient

comparisons with comparable properties to reach a valid

conclusion.

[]{#__RefHeading___Toc169057657 .anchor}**12-6. EXISTING HOUSES BEING
MOVED TO NEW FOUNDATIONS**. \<[Top](#_top)\>

A. Eligibility. Three types of properties are eligible:

1\) Emergency moves of properties already covered by HUD

insurance. The move can be made at the risk of the

mortgagee without prior approval of HUD.

2\) Non-emergency moves of properties covered by HUD insurance

requiring prior approval by HUD.

3\) Non-emergency moves of properties not insured by HUD but

seeking such insurance and requiring prior approval.

B. Applications for Insurance. Applications for insurance may be

submitted under any home mortgage section of the National

Housing Act. On properties already insured, the request for

non-emergency moving of structures is made in the form of a

letter of proposal from the mortgagee setting forth the

conditions and reasons for the move.

1\) Application for insurance or letter of proposal after

insurance must clearly outline all aspects of the proposed

transaction, including the present address or location of

the dwelling to be moved, and the location of the site to

which the dwelling will be moved.

2\) No Builder\'s Warranty will be required.

C. Architectural/Valuation Processing. (All proposals except

emergency.) The following steps will be followed:

(12-6) 1) Exhibits shall be submitted with each application and will

be reviewed by the Architectural section. Exhibits for the

new location shall include a plot plan showing proposed

location of the house, garage, terraces, stoops, walks,

driveways, utilities, etc., as well as footings,

inundations, and slab details. Drawings of the existing

structure are necessary only to the extent required to show

any proposed alterations or repairs. If pertinent,

subdivision exhibits and exhibits required for individual

water supply and sewage disposal systems shall be

submitted.

Form HUD-92005, Description of Materials, completed to the

extent necessary, shall be submitted to describe any

features of the new construction which cannot be shown on

the drawings.

2\) Proposed on-site improvements, e.g., footings, foundations,

walks, etc., shall comply with or exceed all applicable

Minimum Property Standards in 24 CFR 200.926d (HUD Handbook

4910.1, Appendix K). Existing construction, including

repairs, alterations, and additions thereto, shall comply

with the General Acceptability Criteria of the Minimum

Property Standards as shown in the beginning of this

chapter and the stated objectives of all other applicable

standards. Repairs, alterations, or additions not started

or completed at the time of commitment for insurance or at

the time of issuance of HUD letter of approval to move a

structure already insured, shall be done in accordance with

the specified standards wherever practicable.

3\) Field inspection of the existing property prior to moving

should be made concurrently by an appraiser and inspector.

The local building authority will require a moved house to

be brought up to the present building code. Such

requirements are reflected in the cost of repairs and are

made a specific condition of the commitment. This will

assure HUD that all items of repair or replacement

necessary to bring the property into good saleable and

eligible condition have been discovered and the repairs

required as a condition of the commitment. The inspector

should note structural defects which might be aggravated by

the move and which need special commitment requirements for

correction.

4\) After inspecting the proposed new location the appraiser

will appraise the property as it will exist at the

completion of the move assuming compliance with all

requirements. The Uniform Residential Appraisal Report

will be used in the usual manner.

(12-6) 5) Except in those instances where the complexity of the case

warrants or when requested by the Director of

Housing/Housing Development, cost estimates, including any

involving alterations, additions or repairs, will be

prepared by the appraiser. The URAR will be completed by

the appraiser as in the case of any existing property.

6\) When examination of the structure reveals noncompliance

with the objectives of the Minimum Property Standards and

correction is feasible, an appropriate specific condition

is recommended in the report. Where no correction is

feasible and compliance can be effected only by excessive

major repairs, rejection is indicated, and the reasons

clearly explained in the report.

7\) Requirements for compliance inspections will be made on all

new work (footings, foundation walls, gradings, etc.) as

well as proposed or required alterations, additions, or

repairs. The mortgagee shall notify HUD 48 hours prior to

start of construction of proposed improvements and shall

notify HUD of the date the house is to be placed on the new

foundation.

8\) The appraiser shall require an architectural inspection of

the foundation before the house is placed on the new

foundation. A second inspection shall be required before

the covering of any structural elements or major components

(electrical, plumbing, etc.) when new additions or major

alterations are proposed. A final inspection is always

required upon the completion of the dwelling.

9\) In cases involving proposed individual water supply and/or

sewage disposal systems, necessary requirements will be

made pursuant to outstanding instructions.

[]{#__RefHeading___Toc169057658 .anchor}**12-7. HUD ACCEPTANCE OF VA
CERTIFICATE OF REASONABLE VALUE (CRV)**. \<[Top](#_top)\> The

Certificate of Reasonable Value (CRV issued by the ns

Department of Veterans Affairs shall be accepted by the

Field Offices as the basis for establishing value,

mortgage term, and specific conditions in issuing

commitments in cases involving a known borrower subject to

the restrictions and processing instructions shown below.

Field Offices shall accept CRVs for both existing and

proposed construction at face value. No CRV shall be

rejected unless there is evidence in the office of

unacceptability in which case it may be rejected, but the

Field Office is to send a copy of the Rejection notice to

the Single Family Valuation and Technical Support Branch

in Headquarters for informational purposes.

(12-7) A. General Processing Procedures. In order to be eligible for

processing under this procedure, the mortgagee\'s application

must involve a known borrower, include completed Form HUD-92800

and 92900 with all required exhibits (except those normally

required to establish value), the CRV (VA Form 26-1843), and

evidence of compliance with any requirements established by VA

which have been satisfied before the application is submitted.

1\) Proposed Construction. The mortgagee must submit a Builder

Certification of compliance with HUD regulations and the

exhibit requirements in HUD Handbook 4145.1, and ensure

that the builder has attached the proper certification on

the front page of each set of plans prior to submitting an

application. It is not necessary for mortgagees to review

the plans. On individual proposed VA-CRV\'s, a

certification must be attached to each case. On Master

VA-CRV\'s, a value for each model to be converted must be

submitted. Plans need not accompany VA-CRV conversion

requests.

a\. In the case of a master CRV, the value of the basic

house is shown on an attached list and the first page

of the master CRV shows the value of available

alternates. When the application is accompanied by

such a master CRV, the alternates included in the

property covered by the application must be circled.

b\. In these cases, the value of the basic house and the

value of included alternates will be added and the sum

will indicate the Value of Property. If on alternates

are circled, the mortgage credit (examiner will assume

that no alternates are included and will record the

value of the basic house as Value of Property. (These

cases are the sole exception to the requirement that

any change in value be made by VA. If value was

determined on the basis of a master CRV without

considering alternates and the mortgagee later submits

evidence that alternates should have been included,

the Field Office may adjust the HUD Value accordingly

without reference to VA.)

c\. Closing costs and other information necessary for

mortgage credit processing will be taken from the form

entitled \"Mortgagee Request for Conversion - VA CRV\"

to be provided by the mortgagee. When necessary for

mortgage credit processing, the estimate of monthly

rent will be provided by the Valuation Branch from

data available in the office.

(12-7) 2) Existing Construction. Upon receipt of the entire

application by the Valuation Branch, the case is

immediately assigned to an appropriate staff member for

review of the documents and other items such as flood

hazard area, etc., and then forwarded to the Mortgage,

Credit Branch. An expired CRV is unacceptable unless

evidence is provided that a sales contract had been

executed prior to its expiration.

a\. Unsatisfied Repair Conditions. Any repair conditions

listed on the CRV shall be transferred to the Firm

Commitment and may not be modified except by VA.

Evidence must be submitted at insurance endorsement

that all specific conditions requiring inspection by

other than the mortgagee have been met to the

satisfaction of VA which is responsible for making any

necessary inspections of proposed construction

properties and for resolving any construction

complaints. When the application involves an existing

property and the CRV requires repairs, VA must be

asked to clear them. A mortgagee\'s certification that

the repairs have been completed is acceptable if so

stated on the CRV.

b\. Mortgage Term. The term of the mortgage will be

calculated from the Remaining Economic Life entry on

the CRV. HUD will make no change in the estimate of

economic life shown by VA and will assume the VA

estimate to be correct, even though this may result in

a shortened mortgage term. Mortgagees questioning the

VA estimate should be directed to that agency for

relief.

c\. Changes in Value or Mortgage Term. Any request for

changes in value or mortgage term must be submitted by

the mortgagee to the Department of Veterans

Affairs and may be used by the Field Office only if VA

issues an amended CRV. When value and mortgage term

are based on a CRV, the Director of Housing

Development does not have the prerogative of making

changes in either item during the life of the

original, unextended commitment.

d\. Outstanding Conditional Commitments. HUD will not

knowingly accept a CRV application for conversion when

there is an outstanding HUD conditional commitment

(12-7) involving the same property. If the HUD conditional

commitment is returned for cancellation in connection

with the CRV conversion transaction, the resultant HUD

commitment may not exceed the value shown on the

cancelled commitment.

e\. Mortgagor Complaints. Complaints received by the

Field Office regarding VA inspection procedures, the

appraisal made by VA, a lack of specific repairs on

the CRV, etc., are to be referred to the local VA

office for handling.

[]{#__RefHeading___Toc169057659 .anchor}**12-8. APPLICATION FOR
OPERATIVE-BUILDER COMMITMENTS**. \<[Top](#_top)\>

RESERVED

[]{#__RefHeading___Toc169057660 .anchor}**12-9. FINISHED FLOORING IN
PROPOSED CONSTRUCTION CASES**. \<[Top](#_top)\> HUD allows

carpeting as well as hardwood or other types of flooring as a

finished floor. The value to be attributed to carpeting is set

forth in the Marshall and Swift Cost Handbook.

A. In the event that the carpeting is installed over another type

of finished floor, both the finished floor and the carpeting are

to be included in value.

B. It is therefore important that the appraiser make a visual

inspection of the subfloor by lifting a small corner of the

installed carpeting and examining the underlayment regardless of

what is stated in the specifications.

C. Carpeting in bathrooms and kitchens is not permitted as a

finished floor in proposed construction cases unless a

water-resistant (linoleum or tile) finish is placed on the

subfloor prior to installing the carpet.

[]{#__RefHeading___Toc169057661 .anchor}**12-10. CARPETING IN EXISTING
HOUSES**. \<[Top](#_top)\>

A. In existing cases, carpeting in kitchens and bathrooms may be

accepted as a finished floor provided that a statement is

obtained from the purchaser acknowledging this fact. It is not

to be considered in value.

B. Acceptable but worn carpeting in other rooms shall be evaluated

separately to determine its influence on the value of the

property being appraised. The value of the acceptable carpeting

is to be included in the value found for the property.

[]{#__RefHeading___Toc169057662 .anchor}**12-11. SOIL TREATMENT WITH
INDIVIDUAL WATER SYSTEMS**. \<[Top](#_top)\> Where termite

infestation is found or suspected in existing dwellings using

individual water supply systems, precaution must be taken in the

type of exterminating treatment to be required in order to prevent

the possibility of infiltrating and endangering water supply. Soil

poisoning in such cases is an unacceptable treatment method unless

satisfactory assurance is provided that the construction and

location of the water supply system meets the specific requirements

of 24 CFR Part 200.926d.

[]{#__RefHeading___Toc169057663 .anchor}**12-12. ESTIMATE OF VALUE OF
FRAGMENTAL PROPERTIES**. \<[Top](#_top)\> Cases arise in which

mortgagees may request consent to the release of a portion of a

property which is subject to an insured mortgage. A special

Valuation Report is required in connection with these cases. (See

HUD Handbook 4170.1 REV., page 4-7.)

A. Value of a Small Area. Frequently the area involved in the

release is small and unusable by itself. Because of its lack of

utility taken by itself, it might appear logical to assign no

value to it, but this would be incorrect. If a small area

contributes something to the utility of the whole property, it

must have some value even though it may be nominal.

B. Property Sold to an Adjacent Owner. The release of a portion of

the property from the mortgage may be sought so that it may be

sold to the owner of an adjacent property. Under these

circumstances the purchase price is a guide to the estimate of

value though it often may greatly exceed a plausible valuation

Because of matters such as the presence of necessity or

extraordinary motivation on the part of the buyer.

[]{#__RefHeading___Toc169057664 .anchor}**12-13. CONSIDERATION IN AREAS
AFFECTED BY MILITARY INSTALLATIONS**. \<[Top](#_top)\> Field

Offices may have situations in which HUD mortgage insurance may not

be proper because of the housing demand attributable to military

installations in the area. Such situations arise when the

permanence and stability of the demand for housing to serve these

installations are not evident. The phrase \"military-connected

civilian personnel\" means civilian employees of military

installations, and of contractors and subcontractors directly

associated with the military.)

A. Market Considerations. All considerations respecting the use of

HUD insurance in military-impacted areas must recognize that the

permanency of the \"permanent\" military installation is by no

means assured. Changing world conditions and technological

advances can materially affect the activities and assigned

personnel strength of military installations. Further, a rapid

(12-13) turnover of personnel in these areas may be anticipated.

Current housing needs, therefore, may not provide the basis for

long-term support of either the sales or rental market, or

both.

1\) Even though housing can meet sales prices or rent ranges

commensurate with the capacity of military and

military-connected civilian personnel and be within the

commuting radius authorized for personnel of the

installation, the following considerations will continue

to be paramount in determinations with respect to mortgage

insurance:

a\. The type and mission of installation, its historical

stability, and the projected continued necessity for

this type of activity or a logical replacement.

b\. Stability in the assigned strength (military and

civilian) of the installation and the prospective

maintenance of this strength over a long term.

c\. The magnitude of the total current housing

requirements for installation personnel relative

to the total housing needs (i.e., occupied housing

units) of the support area.

2\) These factors cannot always be determined with a high

degree of certainty. For some areas, however, the

situation is practically self-evident and there is no need

for a thorough examination of the basic considerations.

For example, in localities with an economic background that

will clearly assure absorption and the continued

marketability of additional housing, despite substantial or

complete curtailment of military activity, mortgage

insurance is permissible for military personnel as well as

civilian employees of the installation.

a\. Any large metropolitan area in which the number of

military and military-connected civilian personnel is

minor, compared with the number constituting continued

demand from other sources, would fall in this

classification.

b\. In such areas, however, locations within a military

reservation (or near such a reservation, but

inconveniently situated with respect to any other

source of employment) will be ineligible for mortgage

insurance.

(12-13) 3) As an opposite example, in any small community where the
demand

for housing from military and military-connected civilian

personnel is clearly predominant, compared with the number

constituting continued demand from other sources, mortgage

insurance is not to be utilized in the satisfaction of

military-oriented demand.

4\) Between these two extremes there is a wide diversity of

military impact. In those areas of military impact in

which use of mortgage insurance is considered marginal,

(after carefully considering the historic economic

background of the community and the continuing

marketability of additional units in the event of a change

in mission or a significant decline in strength, i.e., 20

percent or more) a request through the Regional

Administrator to the Assistant Secretary for Housing for

consideration shall be made for Field Office guidance on

operating procedure. (See HUD Handbook 4010.1.)

B. Marginal Situations. In the interest of consistency among Field

Offices, marginal situations will be deemed to include all areas

in which either or both of the following conditions exist:

1\) The Secretary of Defense, or his designee, shall have

certified to the Commissioner that the housing is necessary

to provide adequate housing for civilians employed in

connection with a research or development installation of

one of the military departments of the United States, or a

contractor thereof, and that there is no present intention

to substantially curtail the number of the civilian

personnel assigned or to be assigned to such installation.

The certificate shall be conclusive evidence to the

Commissioner of the need for such housing.

2\) Annual volume of residential construction in the housing

market area, either has increased during the last 12 months

or is expected to increase 50 percent or more as a result

of recent or prospective military expansion.

3\) Military and military-connected civilian personnel

currently occupy 25 percent or more of all occupied

residential units (permanent and temporary type) in the

housing market area, including housing on the military

reservation.

(12-13) Note: The Field Office Economic and Market Analysis

Division should be consulted for information and

recommendations concerning marginal situations. Where

questions arise concerning the conditions, intensity, and

duration of characteristics of housing markets, the Area

EMAD will undertake any appropriate market studies that are

necessary to (1) describe the severity and problems of the

housing market and (2) to formulate specific

recommendations to the Office Manager for coping with these

problems.

C. Headquarters Referrals. The referral of these marginal

situations to Headquarters will include the data accumulated by

the Field Office during its analysis of the matter plus comments

and recommendations.

D. Periodic Re-analysis. Periodic re-analysis of military impacted

areas must be made by the Field Office because with increases in

population, and expanded patterns of growth around metropolitan

areas, changes in demand from other sources can occur rapidly.

When demand from other sources becomes predominant or can be

accurately predicted, requests for changes in the office\'s

policy will be forwarded through the Regional Administrator to

the Assistant Secretary for Housing.

E. Conditions of Application Acceptance. Home Mortgage

Applications can be accepted for individual conditional

commitments in all military impacted areas when a buyer is known

and a bona fide sales contract is submitted by the mortgagee.

These commitments are limited to prospective owner-occupants.

All mortgagors including military connected mortgagors as

defined above are eligible. The mortgagor must meet the

criteria for the Section of the Act under which application is

made.

[]{#__RefHeading___Toc169057665 .anchor}**12-14. SOLAR ENERGY**.
\<[Top](#_top)\>

A. To encourage the use of solar energy in homes, HUD will insure a

mortgage up to 20 percent above the maximum allowable insurable

amount in a geographical area if such increase is necessary to

account for the increased cost of the residence due to the

installation of a solar energy system which may not exceed 20

percent of the value of the property. HUD programs eligible for

this allowance are 203(b), 203(k), 203(n), 233, 244, 245, 809

and 203(i). While Section 234 is not included as an eligible

program for an increased mortgage amount, there is no reason

that solar energy may not be included in a condominium with

added value for the system provided that the mortgage amount

(12-14) does not exceed the maximum insurable amount for the

geographical area in which it is located. Applicable mortgage

amounts for two-, three- and four-unit dwellings are

appropriately affected. Proper documentation of the Homeowners

Association acceptance and a hold harmless covenant executed by

the mortgagor(s) must be submitted with an application for a

condominium unit.

B. An eligible solar energy system is defined as any addition,

alteration, or improvement to an existing or new structure which

is designed to utilize wind or solar energy to reduce energy

requirements obtained from other sources. Solar heating and

domestic hot water systems are not acceptable without

operational 100 percent back-up conventional systems. Active

and passive solar energy systems are permitted in this program.

The systems must comply with HUD Handbook 4930.2, Intermediate

Minimum Property Standards for Solar Heating and Domestic Hot

Water Systems. Descriptions of various types of active and

passive solar systems are included in Appendix C of these

standards.

C. The solar energy system\'s contribution to value will be limited

by its replacement cost or by its effect on the market price of

the dwelling. In the event that market data is not available to

indicate the additional amount which would be paid for a

property containing a solar energy system, the amount of

increase would be the lesser of the actual cost of the solar

system installed in the subject house or 20 percent of the

market value of the property. The difference in added value

contributed by the solar system in comparison to the

conventional system must represent a reasonable proportion of

the total value of the property and may never exceed 20 percent

of the market value of the property without a solar energy

system.

D. If a Veterans Administration Certificate of Reasonable Value for

existing construction is involved, and a solar system is

included, the value established on the CRV will reflect the

presence of the solar system. If the mortgagee requests a

mortgage based on the solar system which exceeds the maximum

mortgage amount for the area, it is the responsibility of the

mortgagee to secure from the local VA office a copy of the

uniform Residential Appraisal Report on the property, URAR, and

submit it with the VA CRV. This form will enable the local HUD

Office to determine the incremental increase in the value of the

property added by the solar system. Once the increase has been

identified by the HUD Office, the aforementioned procedure for

determining the maximum mortgage amount would govern. It is

(12-14) appropriate to note that in arriving at the VA established

reasonable value of a property with a solar system, the amount

by which the solar system increases the value is based on market

comparisons and not on the actual cost of the solar system.

E. APPRAISAL PROCEDURE. The appraiser shall reflect in value the

local market acceptance of solar heating equipment. Solar

heating and hot water systems are not acceptable without

operational 100 percent backup conventional systems. Solar

collectors must be located where they will be free from natural

or man made obstructions to the sun.

1\) Acceptability. When such systems are proposed to be

installed, they shall comply with the provisions of

Handbook 4930.2, Intermediate Minimum Property Standards

Supplement for Solar Heating and Domestic Hot Water

Systems. When such a system is already installed in an

existing home, the appraiser may request an inspection of

the system by the person responsible for the architectural

or engineering aspects of the solar energy program in that

Field Office for recommendations as to acceptability.

2\) Limits to Value. The solar heating or hot water system\'s

contribution to value will be limited by its replacement

cost and by its effect on the market price of the dwelling.

In completing the estimate of value by market comparison

between a subject property which includes a solar heating

system and a recently sold comparable property which

includes a fossil fuel system only, the sale price of the

comparable is increased by the amount typically paid in the

market for the solar heating system, to arrive at the

indicated market price of subject property.

3\) Temporary Procedure - Lack of Market Data. In the event

that market data is not available to indicate the

additional amount which would be paid for a property which

does include solar heating or hot water system, then the

amount of the increase shall be the difference in cost

between all heating equipment including solar installed in

the subject house less the cost of all heating equipment

installed in the comparable property without a solar

installation. However, in making this adjustment based on

differences in cost, the appraiser shall consider the ratio

between the value added by solar heating system and the

value of the property with a conventional heating system

only, to ensure that the contribution of a solar heating

system to total value represents a reasonable proportion of

the total value of the property.

(12-14) 4) Responsibility for Temporary Limit. The Field Office

shall consider the costs of acceptable solar energy

systems for homes of several sizes, and shall consider the

market prices of typical homes of these several sizes

(without solar energy systems) in order to set a limit on

the amount which a solar energy system can add to the

estimated value of the subject property. This limit shall

be expressed as a percentage of the market value of the

subject property (before consideration of the solar energy

system) and this limit shall not exceed 20 percent of the

market value of the subject property (without a solar

energy system).

F. The following steps set forth the procedure which will be

utilized in determining the applicability of the authorization:

1\) Market Data Survey

Market data may be collected in two ways. The Field Office

may use either or both methods with the understanding that

method #1 be considered more reliable and that method #2

will require additional consideration during analysis.

2\) Method #1 - Price Extraction

a\. The Valuation Branch surveys builders of new

subdivisions or custom homes to determine the price of

solar water systems when sold to new home buyers as an

add-on or alternate feature. These incremental price.

increases should be expressed as a percentage of value

by dividing the price of the solar application by the

total sales price.

Example: Base Price of Home \$110,000

Solar Hot Water (alternate) 4,000

Upgrades (all other alternates) 3,700

\_\_\_\_\_\_\_\_

Total sales price \$117,700

\$4,000 / \$117,700 = 3.4% (shown below as Data #6)

(12-14) b. There should be at least ten such data indicators from

which to develop an overall value percentage for the

Market Value Guide. DO NOT AVERAGE! Use of a median

or mode (typical) is preferred to averaging.

Example: Data #1 2.8%

Data #2 2.9%

Data #3 3.1%

Data #4 3.1%

Data #5 3.2%

Data #6 3.4%

Data #7 3.5%

Data #8 3.5%

Data #9 3.5%

Data #10 3.9%

\_\_\_\_\_\_\_\_ \_\_\_\_

Selected 3.5% (most typical)

If this type of data is not available to the Field

Office, then Method #2 may be used.

3\) Method #2 - Paired Sales

a\. The Valuation Branch develops a number of paired

sales, which will compare existing homes with solar

water heating systems against similar sold properties

without solar water heating. Since this is a crude

measurement, the difference in adjusted values should

be expressed as a percent of value of the home with

solar.

Example:

Comp. Sale Comp. sale

Without With

Solar Solar \$ Difference % Difference

Pair #1 80,100 82,750 2,600 3.1%

Pair #2 79,000 81,500 2,500 3%

Pair #3 101,000 102,000 1,000 1%

Pair #10 98,000 101,500 3,500 3.4%

Median 80,000 82,500 2,500 3.125

selected

(12-14) b. Since this method measures the relative market value

of existing solar applications in used or unknown

condition, a depreciation factor can be applied by

the appraiser in order to approximate the market

value of a new system.

4\) Depreciation Factor

a\. The Depreciation Factor should be selected by the

Valuation Branch, based on \"straight line\" applied

to the typical (prevalent) age of solar heaters used

for the sample. For example: Based on a 20 year

life and assuming straight line depreciation or 5

percent per year, if the comparable solar systems are

mostly 4-6 years old - then, the depreciation factor

of 25 percent could be selected (for 5 years.). This

factor should be expressed as 125 percent (one

hundred added). Example:

.05 (per yr.) x 5 (yrs) = 25% Depreciation

(convert to 125)

125 x 3.125 = 3.9 (Factor which represents

percentage difference between solar and

non-solar equipped homes approximately five

years old plus 125 percent addition to equate

to NEW system.

5\) Correlation

The Valuation Branch may issue its value guide based

on the results of Method #1, Method #2, or a

correlation of two methods. Example:

Method #1 = 3.5% (superior method)

Method #2 = 3.9%

Selected - 3.5% (to be issued in guide)

(Method #1 given most weight because data is more

reliable)

Valuation Branch may select either or make an

interpolation of the two numbers.

6\) Use of Appraisal Addendum

A sample worksheet for use by underwriters is exhibited on

pages 12-32 thru 12-36 as a guide. It may be completed and

submitted with the appraisal as an addendum.

(12-14) 7) Cost Approach to Value

a\. When the Field office determines the market approach

is not appropriate for use because of inadequate

market data, then the cost approach to value will be

used.

b\. Cost will be calculated by Regional Offices of Housing

for all Regional-accepted solar water heating systems,

and will be included as part of the Regional Utility

Engineers\' written acceptance of each system. If

there are system size difference - more than one cost

will be shown (see Exhibit #2, pages 12-29 through

12-31).

c\. Regional Offices will also furnish locality adjustment

factor\'s to Field Offices on an annual basis, if

applicable.

8\) Amendment of URAR - Appraisal

After the reconsideration of value action is completed

using an addendum worksheet, the resulting new value should

be entered on the original URAR Appraisal as the new

(amended) market Value and re-dated and signed. A comment

should be made in the last Comments Section of the URAR

\"See Solar Value Worksheet or Addendum, attached.\"

9\) Effect of Value on Mortgage Amount

a\. The full value of the appraised solar water heating

system will be allowed when determined by the methods

outlined in these instructions, except that a maximum

of \$4,000 will be allowed per unit. The maximum

mortgage limits for 1-4 unit properties may be

exceeded by the value of the solar water heating

system where needed to provide for the allowable costs

or value of such installations.

b\. The maximum mortgage limits for condominium units

(Section 234) may not be exceeded under any

circumstances.

EXHIBIT 1 - EXAMPLE

Solar Water Heating Market Value Guide - Field Office

The market value of solar water systems for this jurisdiction has

been determined to be as shown below. The values from this guide will be

used by all appraisers and DE underwriters to complete the addendum to

appraisal: Solar Reconsideration of Value.

Metro - \_\_\_\_\_\_ City 3.5%

Rural & Small Towns 4.0%

2/90

12-28

4150.1 REV-1

EXHIBIT #2

Gentlemen:

Subject: Domestic Hot-Water Solar Systems

Our office has reviewed your latest submittal covering your

recirculation solar systems. We find the recirculation
systems,\_\_\_\_\_\_

as shown on your FHA-001 Thru FHA-008 drawings, to be acceptable for
mild

temperature areas in HUD Region \_\_\_. Your \_\_\_\_\_.38 and\_\_\_\_
41 \_\_\_\_\_\_\_model

collectors consist of black chromed copper absorber fins mechanically

wrapped around 1/2\" O.D. copper tubing risers at 4.3\" centers,
low-iron

tempered glass glazing, foil-faced foam and fiberglass insulation,
extruded

aluminium frame with baked Polyester finish, and aluminum backsheet.
Your

submitted system is now acceptable for single-family home mortgage

insurance subject to the following conditions:

1\. The solar system must be installed in strict compliance with the

submitted documentation, identified as Drawings FHA-001 thru

FHA-008.

2\. The solar system must be installed utilizing the materials which

were submitted. The acceptable materials are as follows:

\- Collector: models 38 and 41

\- Mounting Hardware: models as required, bronze

painted aluminum.

\- Storage Tank: American Appliance MFG SSTA66XV, SSTA82XV;

or A.O. Smith.

\- Control, Independent Energy C30-lS

\- Pump, Grundfos UM15-18SU

\- Isolation end set, 3/4\" compression

\- 4-Way valve, Fluidtech 3/4\"

\- Tempering valve, Taco #426

\- Thermometer, Letro SL2DW

\- Check valve, Nibco S413Y, 3/4\" CxC

\- Pressure-temperature relief valve, NCLX5, 3/4\"

\- Pressure relief valve, FWL2

\- Air vent, MOM #75

\- Solar flashing, Oatey, 1/2\" to 1\"

\- Hose bibb, 3/4\"Cxhose

\- Dielectric union, 3/4\"FPTx3/4\"C

\- Freeze Valve: Dole FP-35, 1/2\", opens at FP-45 opens at

43 deg.F or ASCO 821OC33, 3/8\", opens on power outage.

3\. The collector must be installed in a generally \"solar south\"

orientation, of adequate slope, and in a location that is not

now shaded (such as by trees), nor will be shaded in the

foreseeable future.

4\. Recirculation solar systems are permitted only when provided

with both primary and secondary freeze protection, and then only

in mild temperature areas. (defined as a geographic location

where the ASHRAE \"97.5% Temperature Condition\" is not less than

the following:)

With Dole FP-35 or FP-45 Freeze Valve 35 deg.F

With Solenoid Drain Valve 30 deg.F

5\. If water pressure serving the house exceeds 60-psi, a pressure

reducing valve (complete with strainer and discharge pipe) must

be installed when a freeze valve is used.

6\. When applying for mortgage insurance, the solar firm must

certify that the roof can adequately support the solar

equipment, or provide such adequacy determination from the local

building official.

7\. The system shall carry a full material and labor warranty not

less than the following:

\- Collector - Five years material and labor.

\- Storage Tank - Three years material and labor, plus two

years material limited warranty on tank.

\- Other Equipment - One year material and labor.

8\. The entire system shall be installed to meet the requirements of

the local building inspection department.

9\. Collectors shall be labeled to show the manufacturer\'s name and

address, model number, serial number, and collector weight

(dry). Technical data sheets shall also be provided which

include collector efficiency, maximum allowable operating and

no-flow temperature and pressure, minimum allowable

temperatures, and the types of fluids which can and cannot be

used.

We reserve the right to withdraw our acceptance at any time. It will

be your responsibility to make sure that your contractors make no

deviations from the conditions of this acceptance. Any changes in

materials, methods of installation, or conditions of installation will

invalidate our acceptance.

Very sincerely yours,

Director

Office of Housing

MAXIMUM INSTALLED COST:

1 - Panel, 40 sq. ft. \$3,000 Model 41-1

2 - Panel, 48 sq. ft. \$3,240 Model 38-2

2 - Panel, 80 sq. ft. \$4,200 Model 41-2

ADD \$100 PER PANEL FOR RACK MOUNTING.

EXHIBIT #3

Case \# \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

EXAMPLE Address\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

ADDENDUM TO APPRAISAL

SOLAR RECONSIDERATION OF VALUE

The installation of Energy Conserving Solar Water Heating Systems is

an amenity that increases the value of Single Family Homes. In order to

assist in the development of the incremental value created, the
following

worksheet may be used by HUD staff and DE Underwriters to document the

approach to value most appropriate for the subject property.

Only one approach to value will be completed. The market approach is

preferred where data is sufficient. The Cost approach may be used if

market data is insufficient. If a Market Value guide has been issued by

the Field Office, it must be used and the Cost approach will not be
valid.

The FOLLOWING ANALYSIS supports the final determination of value for

the Subject Property.

MARKET APPROACH Check if Field Office Has No Market Data

Table and Use Cost Approach

1\. Value of property (Original Appraisal) \$\_\_\_\_\_\_\_\_\_\_\_(1)

2\. Value of Solar Hot Water from Market Data

Guide (Furnished by Field Office \$\_\_\_\_\_\_\_\_\_\_\_(2)

factor % \_\_\_\_\_ x \_\_\_\_\_(line 1) = \$ \_\_\_\_\_\_\_

ADJUSTED MARKET VALUE \$\_\_\_\_\_\_\_\_\_\_\_(3)

(Total lines 1 and 2) (Enter on URAR)

COST APPROACH

1\. Value of property (Original Appraisal) \$\_\_\_\_\_\_\_\_\_\_\_(1)

2\. Base Cost From Region \_\_\_\_\_Cost Analysis

Includes locality adjustment \$\_\_\_\_\_\_\_\_\_\_\_(2)

(See attached Region \_\_\_\_\_Cost Table)

ADJUSTED MARKET VALUE \$\_\_\_\_\_\_\_\_\_\_\_(3)

(Total lines 1 and 2) (Enter on URAR)

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

UNDERWRITER - CHUMS \# DATE

EXHIBIT #3(a)

Case \# 05X-00112/6-703

EXAMPLE Address 999 Digitalis

Lane Dune City,

AZ

ADDENDUM TO APPRAISAL

SOLAR RECONSIDERATION OF VALUE

The installation of Energy Conserving Solar Water Heating Systems is

an amenity that increases the value of Single Family Homes. In order to

assist in the development of the incremental value created, the
following

worksheet may be used by HUD staff and DE Underwriters to document the

approach to value most appropriate for the subject property.

Only one approach to value will be completed. The market approach is

preferred where data is sufficient. The Cost approach may be used if

market data is insufficient. If a Market Value guide has been issued by

the Field Office, it must be used and the Cost approach will not be
valid.

The FOLLOWING ANALYSIS supports the final determination of value for

the Subject Property.

MARKET APPROACH X Check if Field Office Has No Market Data Table

and Use Cost Approach

1\. Value of property (Original Appraisal) \$\_\_\_\_\_\_\_\_\_\_ (1)

2\. Value of Solar Hot Water from Market Data

Guide (Furnished by Field Office \$\_\_\_\_\_\_\_\_\_\_ (2)

factor % \_\_\_\_\_ x \_\_\_\_\_(line 1) = \$\_\_\_\_\_\_\_\_\_\_\_

ADJUSTED MARKET VALUE \$\_\_\_\_\_\_\_\_\_\_ (3)

(Total lines I and 2) (Enter on URAR)

COST APPROACH

1\. Value of property (Original Appraisal) \$ 102,000 (1)

\_\_\_\_\_\_\_\_\_\_\_

2\. Base Cost From Region \_\_\_ Cost Analysis Basic Size

Includes locality adjustment \$ 3,100 (2)

(See attached Region \_\_\_ Cost Table) = \$\_\_\_\_\_
\_\_\_\_\_\_\_\_\_\_\_\_

ADJUSTED MARKET VALUE \$ 105,100 (3)

(Total lines 1 and 2) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(Enter on URAR)

Rose Gardens - GGYY3 12/12/88

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

UNDERWRITER - CHUMS \# DATE

EXHIBIT #3(a)

Case 05X-00111/1-703

EXAMPLE Address 999 Foxglove Court

Dune City, AZ

ADDENDUM TO APPRAISAL

SOLAR RECONSIDERATION OF VALUE

The installation of Energy Conserving Solar Water Heating Systems is an

amenity that increases the value of Single Family Homes. In order to

assist in the development of the incremental value created, the
following

worksheet may be used by HUD staff and DE underwriters to document the

approach to value most appropriate for the subject property.

Only one approach to value will be completed. The market approach is

preferred where data is sufficient. The Cost approach may be used if

market data is insufficient. If a Market Value guide has been issued by

the Field Office, it must be used and the Cost approach will not be
valid.

The FOLLOWING ANALYSIS supports the final determination of value for

the Subject Property.

MARKET APPROACH Check if Field Office Has No Market Data Table

and Use Cost Approach

1\. Value of property (Original Appraisal) \$ 102,000 (1)

\_\_\_\_\_\_\_\_\_\_\_\_\_\_

2\. Value of Solar Hot Water from Market Data

Guide (Furnished by Field Office \$ 3,570 (2)

factor % 3.5 x 102,000(line 1) = \$ 3,570 \_\_\_\_\_\_\_\_\_\_\_\_\_\_

ADJUSTED MARKET VALUE \$ 105,570 (3)

(Total lines 1 and 2) \_\_\_\_\_\_\_\_\_\_\_\_\_\_

(enter on URAR)

COST APPROACH

1\. Value of property (Original Appraisal) \$ \_\_\_\_\_\_\_\_\_\_ (1)

2\. Base Cost From Region \_\_\_\_ Cost Analysis

Includes locality adjustment \$ \_\_\_\_\_\_\_\_\_\_ (2)

(See attached Region \_\_\_\_ Cost Table)

ADJUSTED MARKET VALUE \$ \_\_\_\_\_\_\_\_\_\_\_\_\_(3)

(Total lines 1 and 2) (Enter on URAR)

Rose Gardens - GGYY3 12/12/88

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

UNDERWRITER - CHUMS \# DATE

[]{#__RefHeading___Toc169057666 .anchor}**12-15. WEATHERIZATION
PROGRAM**. \<[Top](#_top)\>

A. Thermal Protection. The purpose of this program is to assist

the homeowner in reducing the heating and cooling expense of

maintaining a home. Mortgagees and real estate brokers should

be encouraged to inform prospective purchasers of the fact that

thermal protection improvements are considered in each appraisal

and that they should consider having a home energy audit

performed by their local utility company. The following types

of energy-saving improvements may be included:

1\) Thermostats.

2\) Insulation wrap for water heaters.

3\) Insulation of ducts and pipes in unheated spaces of

heating/cooling systems.

4\) Attic insulation.

5\) Insulation for floors and foundation walls.

6\) Installation of weather stripping/caulking.

7\) Installation of storm windows/doors.

The installation of thermal improvements usually make them

cost-effective. The Department is committed to encouraging the

installation of thermal improvements to conserve energy whenever

possible.

B. Mortgagees should emphasize the benefits of the trade-off

between energy conserving capital costs and subsequent operating

expenses in underwriting single family housing. Utility

schedules require constant updating to reflect current utility

costs in properties having similar thermal protection

improvements. The utility costs after installation of thermal

improvements should be lower and therefore should offset some of

the cost due to the installation of energy saving devices.

C. Conditional commitments/statements of appraised value (form HUD

928OO-5B) issued on existing construction contain a

recommendation that homebuyers contact their local utility

company for a home energy audit. If estimated value and the

mortgage amount are to be increased, as stated subsequently

herein, the improvements must follow the procedure prescribed

below:

1\) The value of the property, as recorded by the appraiser on

the Uniform Residential Appraisal Report will not include

recommended thermal protection improvements.

a\. The estimated value may later be increased by the

Mortgage Credit Branch or by a Direct Endorsement

Mortgagee Underwriter by the amount of the cost of

improvements when such improvements have been made and

a request is received for an increase in value and

mortgage amount based upon those improvements.

b\. This increase shall be made by one of the following

methods if such improvements have been made and money

has been expended for weatherization and/or energy

conservation improvements to the property. A

contractor\'s statement of cost of work completed or

buyer/seller\'s copy of a statement showing the cost of

materials used must be submitted.

1\. \$2,000 or less without a separate value

determination. (Submission of a contract for the

work to be done.)

2\. From \$2,001 to \$3,500 if supported by a value

determination made by a HUD review appraiser,

staff appraiser, or Direct Endorsement Mortgagee

Underwriter. (This is based upon submission of a

contract or firm bid for the work to be done.

The value determination is normally made by the

desk reviewer in house; however, some value

determinations may require a field inspection of

the property. The review appraiser shall make

this inspection if necessary.

3\. \$3,501 or more subject to an inspection made by

a HUD-approved fee appraiser/inspector or DE

staff appraiser. The lender will mail all

proposals submitted by the homeowner concerning

the addition of thermal protection improvements

to the Field Office or the Direct Endorsement

Mortgagee Underwriter for review. The

appraiser/inspector must review the expense

involved in adding the thermal improvements and

determine what effect the improvements will have

on value. This will be done by an on-site

inspection.

(12-15) 4. In addition, appraisers should estimate any

expected utility cost savings resulting from

energy-related improvements.

5\. The appraiser/inspector will bill the lender for

the inspection, but the fee charged cannot exceed

those charged for inspections in the geographical

area. The lender is responsible for paying the

fee appraiser/inspector for this service.

2\) The following standards must be observed:

Thermal protection for glazing shall be provided for all

habitable heated areas in locations having more than 1001

heating degree days annually for electric resistance heat

and for 3501 or more heating degree days for all other

fuels. This should be effected through the installation of

storm sash, inserts or insulating glass. Storm doors

should be provided for exterior doors in locations having

more than 1001 annual heating degree days for electric

resistance heat and for 3501 or more heating degree days

for all other fuels. Material and installation may be the

most economical locally acceptable.

a\. Recommendations for storm doors need not be made for

double front doors, double French doors, sliding glass

doors or any other door, the dimensions of which

require custom manufacturing which is not generally

available or the cost of which would be excessive.

b\. Casement, awning windows, and other types of sash

having discontinued sizes or unusual opening

configurations for which no storm inserts are

manufactured and for which the cost of custom

manufacturing would be excessive shall not be

included.

3\) Heating winter degree days and summer cooling hours for

various cities will be found in the \"NAHB Insulating Manual

for Homes and Apartments.\" Data for cities and towns not

shown may be estimated by comparison or interpolation, or

may be obtained from the local Weather Bureau.

(12-15) 4) Ceiling insulation equal to the following R values shall be

recommended for all habitable heated and cooled areas as

follows:

Degree Days Type of Energy

Annual Electric Electric All

Heating Resistance Heat Other

Degree Days Heating Pump Fuels

0-1000 19 19 19

1001-2500 22 19 19

2501-3500 30 22 22

3501-6000 30 30 30

6001-7000 38 38 30

7001 or more 38 38 38

5\) Additional insulation shall not be recommended unless the

recommended level is approximately 3 inches greater than

the existing insulation.

6\) Exemption of the ceiling insulation recommendation will be

made for dwellings having flat roofs or other ceiling areas

when installation is determined to be impractical.

7\) Doors and windows shall be weather stripped to reduce

infiltration of air when weather stripping is inadequate or

nonexistent; additional weather stripping is not required

when openings are protected by storm doors or storm

windows.

8\) Caulk, gasket, or otherwise seal all openings, cracks, or

joints in exterior walls when existing materials are

inadequate.

9\) In all instances, the adequacy of attic ventilation must

be ascertained.

10\) The approximate thickness of mineral fiber insulation for

each R value is indicated below. The R value will vary

with different materials, and when labels or bags are

present, it will appear thereon.

(12-15)

INSULATION CONVERSION TABLE

EQUIVALENTS

R Value Batt or Blanket Loose Fill

19 5 1/2 - 6 1/2 Inches 6 1/2 - 8 3/4 Inches

22 6 1/2 Inches 7 - 9 1/2 Inches

30 9 Inches 10 - 11 Inches

38 12 Inches 13 - 17 Inches

11\) Crawl space insulation of R-11 or R-19 value should be

placed beneath all habitable heated areas in locations

having more than 2500 annual heating degree days when

electric resistance heating is used and for areas of more

than 3500 heating degree days for all other fuels. It is

also very important that a vapor barrier be placed on the

ground.

12\) Upon receipt of a firm application where the thermal

protection recommendations have been met or are anticipated

to be met, the mortgagee submits paid bills or invoices

indicating the cost to the homeowner for weatherization

and/or energy conservation improvements to be installed on

the property. The Mortgage Credit examiner or DE

underwriter shall add the appropriate cost to the value of

the property in accordance with the limitations cited

heretofore. A new mortgage amount will then be calculated.

The firm commitment will reflect the new mortgage amount.

The improvements need not be inspected by HUD. The

commitment will be conditioned that a mortgagee

certification must be received to assure HUD that the

thermal protection devices have been properly installed.

13\) In the event the improvements are not completed and

inspected prior to firm commitment (but will be made

later), a firm contract bid by the installer must be

presented to the Mortgage Credit examiner or DE underwriter

for consideration of the contract amount prior to issuing

the firm commitment. The firm contract price shall also

serve as the amount to escrow should there be any delay in

completing the conservation requirements between firm

commitment and insurance endorsement. Form HUD-92300,

Mortgagee\'s Assurance of Completion, shall be used where an

escrow is required. If the improvements are not completed

within a reasonable amount of time, the escrow will be

applied to reduce the loan principle.

[]{#__RefHeading___Toc169057667 .anchor}**12-16. WATER AND SEWAGE
SYSTEMS**. \<[Top](#_top)\> There are three types of water and sewer

systems which may be acceptable to serve a dwelling:

A. A public system which is owned, operated and maintained by the

city, county or local unit of government with power of taxation

or assessment. This system is most preferred for safety and

reliability.

B. A community system, which is a central system, owned, operated

and maintained by a private corporation or a non-profit property

owners association.

1\) For both proposed and existing construction community water

systems must:

a\. Have current water supply permit from the local Health

Department with evidence that the water supply:

1\. Meets State Drinking Water Standards for quality

and

2\. Provides sufficient quantity to supply peak

demands in the development.

b\. Be in compliance with requirements of the local or

state Health Authority. Deficiencies in the water

system should not adversely affect the health of the

consumers, the acceptability of the quality of the

water for all household purposes nor provide for less

than the quantity of water required in the

development.

c\. Have organizational documents providing for ownership

and operation which meet requirements of HUD Handbook

4075.12 Rev. to assure continuity of service at

reasonable rates.

d\. Private systems operated for profit must be under

jurisdiction of State Public Utility Commission or

have a Trust Deed of Third Party Beneficiary Agreement

as per HUD Handbook 4075.12 Rev.

2\) A Community Sewer System must:

a\. Be in compliance with requirements of the Health

Authority having jurisdiction for satisfactory

operation of the sewage treatment plant and discharge

of treated wastes.

(12-16) b. Have capacity in the sewage collection system and

treatment plant to adequately serve the properties in

the development.

c\. Have organizational documents which assure continuity

of service at reasonable rates as required in HUD

Handbook 4075.12 Rev.

d\. If a private system operated for profit, be regulated

by the State Public Utility Commission or have a Trust

Deed of Third Party Beneficiary Agreement as specified

in HUD Handbook 4075.12 Rev.

3\) Farmers Home Administration approval of water and/or sewage

systems is sufficient for eligibility on individual cases

where both agencies are involved.

4\) Articles of Incorporation and By-Laws for water and

sewerage systems owned by property owner associations or

cooperatively owned systems will also be acceptable for

assuring continued service and reasonable rates if approved

by the Farmers Home Administration.

5\) Whenever public or community facilities are within a

reasonable distance from the property, a connection must be

made to these utilities. However, if the cost to connect

to it would cause a financial hardship, this requirement

may be waived.

6\) Field Offices should maintain a list of all approved

community systems for distribution to appraisers and Direct

Endorsement underwriters.

7\) More detailed information concerning central water and

sewer systems may be found in HUD Handbook 4075.12 Rev.

C. Individual Systems are owned and maintained by the homeowner but

subject to compliance with requirements of the local or State

health authority having jurisdiction.

1\) Proposed Construction Properties.

a\. Individual water supply systems may be acceptable when

connection to a satisfactory public or community

system is not feasible and there is assurance of a

continuing adequate supply of safe potable water for

(12-16) domestic needs and for auxiliary uses, such as lawn

and garden maintenance. Possible sources of pollution

of the water from the subject and adjoining properties

must be considered.

b\. Individual sewage disposal systems may be acceptable

when connection to a public or community system is not

feasible and the site conditions are such that the

individual system can be expected to function

satisfactorily. Examination of neighborhood

conditions is necessary to assist in this

determination. Local health department approval is

required.

2\) Existing Construction Properties.

a\. Individual wells should be checked to ascertain the

distance from the septic system, ease of maintenance

and repair of the well, and adequacy of the water

pressure. The distance from the well to the septic

system must be in accordance with 24 CFR 200.926d (HUD

Handbook 4910.1, Appendix K). A well located within

the foundation walls of a dwelling is not acceptable

except in arctic or subarctic regions. The appraiser

should turn on several cold water faucets in the house

to check water pressure and flow, letting the system

run during the time of the inspection. Flushing a

toilet at the same time will also reveal any weakness

in water pressure.

b\. Individual sewerage systems may be acceptable where

soil conditions are satisfactory for proper

installation and absorption of the effluent. After

checking the interior of the house and water pressure,

the appraiser should then check the outside area for

any evidence of subsurface sewage failure, and/or

evidence of failures in the surrounding neighborhood.

c\. Failure of individual sewerage systems on adjoining

properties may be cause for rejection of the subject

property due to the health hazards involved.

d\. If either system in the subject property is failing,

the property should be rejected with a requirement for

a repair proposal acceptable to local and State

authorities and HUD.

e\. If the home is not occupied and the systems have not

been in use for several months, an inspection of the

sewerage system must be made by a State licensed

sanitation or civil engineer, a State licensed

(12-16) contractor for sewage disposal systems or a member of

a qualified inspection service to determine if the

sewage disposal system was operating in a satisfactory

manner at the time of inspection and if the sewerage

system is considered adequate to dispose of all

domestic wastes in a manner which will not create a

nuisance or endanger the public health. (If the

system has not been in use for thirty days, a dye test

is recommended.)

f\. There must also be an inspection of the water system

and a certificate from a local health authority or a

State EPA approved laboratory to determine if the

system was operating in a satisfactory manner at the

time of inspection, and if the quality of water supply

meets the local health or State drinking water

standards based on results of:

1\. Bacteriological analysis of the water supply

source.

2\. Chemical analysis of the water supply source

where there is a history of ground water

contamination in the area.

NOTE: Only the laboratory may perform the

sampling. A third party is not acceptable.

3\. The well construction must meet the requirements

of the health authority.

D. Suitability of Soil. The soil and subsoil conditions of the

site must be considered. The type and permeability of the soil,

the location of the water table, surface drainage conditions,

compaction, and the existence of rock formations are among the

physical features that are important in the analysis of the

site. Effects of the adverse features of the adjoining land

must also be observed.

[]{#__RefHeading___Toc169057668 .anchor}**12-17. SHARED WELLS**.
\<[Top](#_top)\> To be eligible for consideration for mortgage

insurance, any shared well must:

A. Serve existing properties which cannot feasibly be connected to

an acceptable public or community water supply system.

B. Serve proposed construction only if:

1\) It is infeasible to serve the housing by an acceptable

public or community water system; and

(12-17) 2) The housing is located other than in an area where local

officials have certified that installation of public or

adequate community water and sewer systems are

economically feasible.

C. Be capable of providing a continuing supply of water to involved

dwelling units so that each existing property simultaneously

will be assured at least three gallons per minute (five gallons

per minute for proposed construction) over a continuous

four-hour period. (The well itself may have a lesser yield if

pressurized storage is provided in an amount that will make 720

gallons of water available to each connected existing dwelling

or 1,200 gallons of water available to each proposed dwelling

during a continuous four-hour period. The shared well system

yield should be demonstrated by a certified pumping test or

other means acceptable to all agreeing parties.)

D. Provide safe and potable water. This may be evidenced by a

letter from the health authority having jurisdiction or, in the

absence of local health department standards, by a certified

water quality analysis demonstrating that the well water

complies with the U. S. Environmental Protection Agency\'s

National Interim Primary Drinking Water Regulations, as set

forth in CFR 40, Subpart B, Section 141.11.

E. Have a valve on each dwelling service line as it leaves the well

so that water may be shut off to each served dwelling without

interrupting service to other properties.

F. Serve no more than four living units or properties. If more

than four properties will be served by one well, one of the

ownership and organizational alternatives identified in HUD

4075.12 Rev., paragraph 3b, shall be implemented instead of a

shared well agreement.

G. Be directly connected to the pumping energy source (not through

a dwelling) and energy used for pumping must be separately

metered.

H. Be covered by an acceptable well-sharing agreement. Such an

agreement must:

1\) Be binding upon signatory parties and their successors in

title;

2\) Be recorded in local Deed Records;

3\) When executed and recorded, reflect joinder by any

mortgages holding a mortgage on any property connected to

the shared well; and

(12-1.7) 4) comply with guidance provided below.

I. The same agreement provisions are essential regardless of

whether the well will serve existing or proposed properties.

Provisions that should be reflected in any acceptable

well-sharing agreement include the following:

1\) Shall permit well water sampling and testing by a

responsible local authority at any time at the request of

any party.

2\) Shall require that corrective measures be implemented if

testing reveals a significant water quality deficiency, but

only with the consent of a majority of all parties.

3\) Shall assure continuity of water service to \"supplied\"

parties if the \"supplying\" party has no further need for

the shared well system. (\"Supplied\" parties normally

should assume all costs for their continuing water supply.)

4\) Shall prohibit well water usage by any party for other than

bona fide domestic purposes.

5\) Shall prohibit connection of any additional living unit to

the shared well system without:

a\. The consent of all parties,

b\. Appropriate amendment of the agreement, and

c\. Compliance with items C through F, above.

6\) Shall prohibit any party from locating or relocating any

element of an individual sewage disposal system within 50

feet (100 feet for proposed construction) of the shared

well.

7\) Shall establish easements for all elements of the system,

assuring access and necessary working space for system

operation, maintenance, replacement, improvement,

inspection, and testing.

8\) Shall specify that no party may install landscaping or

improvements that will impair use of the easements.

9\) Shall specify that any removal and replacement of

pre-existing site improvements, necessary for system

operation, maintenance, replacement, improvement,

inspection or

(12-17) testing, will be at the cost of their owner, except that

costs to remove and replace common boundary fencing or

walls shall be shared equally between or among parties.

10\) Shall establish the right of any party to act to correct an

emergency situation in the absence on-site of the other

parties. An emergency situation shall be defined as

failure of any shared portion of the system to deliver

water upon demand.

11\) Shall permit agreement amendment to assure equitable

readjustment of shared costs when there may be significant

changes in well pump energy rates or the occupancy or use

of an involved property.

12\) Shall require the consent of a majority of all parties upon

cost sharing, except in emergency situations, before

actions are taken for system maintenance, replacement or

improvement.

13\) Shall require that any necessary replacement or improvement

of a system element(s) will at least restore original

system performance.

14\) Shall specify required cost sharing for:

a\. The energy supply for the well pump;

b\. System maintenance including repairs, testing,

inspection and disinfection;

c\. System component replacement due to wear,

obsolescence, incrustation or corrosion; and

d\. System improvement to increase the service life of

material or component, to restore well yield, or to

provide necessary system protection.

15\) Shall specify that no party shall be responsible for

unilaterally incurred shared well debts of another party,

except for correction of emergency situations. Emergency

situation correction costs shall be equally shared.

16\) Shall require that each party be responsible for:

a\. Prompt repair of any detected leak in his water

service line or plumbing system;

b\. Repair costs to correct system damage caused by a

resident or guest at his property; and

(12-17) c. necessary repair or replacement of the service line

connecting the system to his dwelling.

17\) Shall require equal sharing of repair costs for system

damage caused by persons other than a resident or guest at

a property sharing the well.

18\) Shall assure equal sharing of costs for abandoning all or

part of the shared system so that contamination of ground

water or other hazards will be avoided.

19\) Shall assure prompt collection from all parties and prompt

payment of system operation, maintenance, replacement, or

improvement costs.

20\) Shall specify that the recorded agreement may not be

amended during the term of a Federally insured or

guaranteed mortgage on any property served, except as

provided in items 5 and 11, above.

21\) Shall provide for binding arbitration of any dispute or

impasse between parties with regard to the system or terms

of agreement. Binding arbitration shall be through the

American Arbitration Association or a similar body and may

be initiated at any time by any party to the agreement.

Arbitration costs shall be equally shared by parties to the

agreement.

[]{#__RefHeading___Toc169057669 .anchor}**12-18. EARTH SHELTERED
HOUSING**. \<[Top](#_top)\>

A. Earth sheltered housing can be built under Title 11 to conform

to Minimum Property Standards (MPS). For proposed construction,

see HUD Handbook 4151.1. Typically such housing is built on

sloped sites or in rolling terrain. Designs which include

judicious relations between buildings and grades should permit

easy access to existing or proposed streets and convenient

access for deliveries, maintenance, fire equipment and car

parking.

B. Foundation walls and roofs retaining or supporting earth, must

be designed for the imposed loads. They must resist the

penetration of moisture.

(12-18)C. Since a major national goal is the conservation of energy,
every

consideration must be given to housing which provides the

possibility that energy use will be reduced. In addition to

reduced energy costs, there is considerable interest in earth

sheltered housing in areas subject to tornados.

Earth sheltered housing in some locations is obviously

inappropriate:

1\) In costal areas where wind driven seas would prove a flood

hazard.

2\) In flood prone areas.

3\) In areas having high water tables.

4\) In any area where hydrostatic or other forces would make

earth sheltered homes hazardous to life safety.

5\) In any area where it is not homogeneous with other homes in

the neighborhood and is not sited in such a manner which

will lead to its attractiveness and marketability.

D. Earth sheltered housing proposals present a problem in

determining marketability and value. generally speaking, a well

designed, attractive and well sited proposal which provides

amenities commensurate with conventionally built housing and

with an approximately similar replacement cost should, pending

the development of market comparable data, have an estimated

value at least approximating that of the conventionally built

new housing.

[]{#__RefHeading___Toc169057670 .anchor}**12-19. DOME HOMES**.
\<[Top](#_top)\> The same considerations apply to dome homes as earth

sheltered homes insofar as location is concerned. In order for such

a property to be fully marketable it must be located in an area of

other similar types of construction and blend in with the

landscape.

[]{#__RefHeading___Toc169057671 .anchor}**12-20. UREA FORMALDEHYDE FOAM
INSULATION**. \<[Top](#_top)\> Since the Consumer Product

Safety Commission has been unable to determine any absolute safe

level of formaldehyde exposure, the Department does not prohibit the

use or presence of urea formaldehyde insulation in single family

residential buildings.

[]{#__RefHeading___Toc169057672 .anchor}**12-21. ASBESTOS**.
\<[Top](#_top)\> Although asbestos has been used in many products in the

past, it is not an easily recognized material. This material may be

found anywhere in a home but may not be obvious to an appraiser.

While an appraiser may recognize an asbestos shingle roof or

asbestos siding on a house, asbestos used in this manner does not

(12-23)pose a danger as would be if the material were deteriorating
within

the confines of a home. Where it is used as an insulation wrap for

hot water pipes, it is usually covered and poses no danger. When

the material is deteriorating into a fine powder and can be inhaled,

it may pose a danger to one\'s health. Also it could be in hidden

areas to which the appraiser has no access.

Asbestos wrapping around hot water pipes in the basement of a

dwelling is usually found only in very old homes. If an appraiser

notices this he/she should make a note on the appraisal report that

there appears to be asbestos insulation wrap around the hot water

pipes. If there is no obvious deterioration of the asbestos such as

punctures or other damage, it should be left alone. If there is

obvious damage, the appraiser should require that the pipes be

wrapped with heavy plastic or other appropriate material. The

appraiser should not require that the asbestos be removed unless it

is in such a deteriorated condition as to pose a serious health

threat. In such a case an asbestos expert must be employed to

remove it.

INDEX

SUBJECT PARAGRAPH

ACCEPTABLE LOCATIONS PURSUANT TO SECTION 223(e) 4-17

ACCURACY IN VALUATION 2-16

ACCURACY OF ESTIMATES 6-28

ADEQUACY OF FUNCTIONAL COMPONENTS 5-15

ADJUSTMENTS 6-11

AIRPORT NOISE AND HAZARDS 4-26

ANALYSIS OF THE ELEMENTS OF CONFORMITY 5-22

ANALYSIS OF PHYSICAL IMPROVEMENTS 5-1

ANALYSIS OF SITE 5-2

APPRAISAL OF ACQUIRED PROPERTIES 12-2

APPLICATION FOR OPERATIVE BUILDER COMMITMENTS 12-8

APPROACH TO VALUE OF THE LEASEHOLD ESTATE 6-33

APPROVAL PROCESSING INSTRUCTIONS (CONDOMINIUMS) 11-4

APPROVALS BY THE DEPARTMENT OF VETERANS AFFAIRS 11-10

APPROVALS BY FNMA 11-11

ASBESTOS 12-21

BASIC VALUATION PROCESS 2-10

BASIS OF COMPARISON 6-25

BASIS OF THE ESTIMATE 6-22

BRACKETING 2-18

CARPETING IN EXISTING HOUSES 12-10

CERTIFICATION OF MECHANICAL EQUIPMENT 5-19

CLAIMS WITHOUT CONVEYANCE (CWOT) 12-3

CLOSING COST DATA 3-12

CODE ENFORCEMENT FOR EXISTING PROPERTIES 5-l8

COMMUNITY SERVICES 4-8

COMPETITIVE LOCATIONS 4-3

COMPLETION OF THE FIELD REVIEW FORM 1038v 9-7

CONDITIONS REQUIRING REPAIR 5-12

CONDITIONS UNDER WHICH VALUE EQUALS REPLACEMENT COST 6-14

CONFORMITY OF PROPERTY TO NEIGHBORHOOD 5-21

CONSIDERATION IN THE ANALYSIS OF LOCATION 4-5

CONSIDERATION IN AREAS AFFECTED BY MILITARY INSTALLATIONS 12-13

CONSIDERATION OF GENERAL TAXES AND SPECIAL ASSESSMENTS 4-18

COST DATA 3-2

SUBJECT PARAGRAPH

DATA REQUIREMENTS FOR MODIFIED COST APPROACH 3-7

DEFINITION OF MARKET VALUE 2-1

DEFINITION OF TERMS 2-3

DEFINITIONS (CONDOMINIUMS) 11-2

DEFINITIONS (LEASEHOLDS) 6-30

DEPRECIATION 2-6

DESIGN 5-20

DETERIORATION 2-8

DETERMINATION OF RIGHTS INCLUDED IN PROPERTY 2-11

DETERMINATION OF RENTAL VALUE 6-21

DEVELOPMENT WITH BUILDINGS UNDER CONSTRUCTION 11-6

DISTINCTION BETWEEN COST AND MARKET VALUE 2-5

DOME HOMES 12-19

DWELLINGS ON HIGHER USE SITES 2-14

EARTH-SHELTERED HOUSING 12-18

EASEMENTS, RESTRICTIONS OR ENCROACHMENTS 5-8

ECONOMIC TRENDS 4-6

ELIGIBILITY OF LEASEHOLD ESTATES 6-32

EQUIPMENT IN VALUE ITEMS 3-16

ESTIMATE OF VALUE OF FRAGMENTAL PROPERTIES 12-12

ESTIMATED MARKET VALUE OF AN EQUIVALENT SITE 6-17

ESTIMATION OF RETURNS FROM PROPERTY 2-12

EVALUATION AND USE OF MARKET DATA 6-8

EXCESS LAND 5-4

EXISTING CONSTRUCTION NON-OPERATING CONDOMINIUM ASSOCIATION 11-7

EXISTING CONSTRUCTION OPERATING CONDOMINIUM 11-8

EXISTING DWELLINGS COMPLETED LESS THAN ONE YEAR PRIOR TO 5-10

APPRAISAL WITHOUT HUD OR V.A. APPROVAL AND INSPECTIONS

EXISTING HOUSES BEING MOVED TO NEW FOUNDATIONS 12-6

FIELD REVIEW OF MORTGAGOR COMPLAINTS 9-6

FINAL CONCLUSION (VALUATION) 2-19

FINISHED FLOORING IN PROPOSED CONSTRUCTION CASES 12-9

FIRE AND EXPLOSION 4-27

FLOOD HAZARD AREAS 4-23

SUBJECT PARAGRAPH

GENERAL INFORMATION (CAPITALIZATION OF INCOME) 6-19

(CONDOMINIUMS) 11-1

(DATA) 3-1

(GROSS RENTAL ESTIMATES) 6-24

(LOCATION ANALYSIS) 4-2

(MANUFACTURED (MOBILE) HOMES) 10-1

(MARKET APPROACH) 6-1

(THE FIELD REVIEW) 9-3

(URAR) 8-1

HEAVY TRAFFIC 4-25

HUD ACCEPTANCE OF CRV 12-7

HUD HOUSING MARKET REPORTS 3-8

INDIVIDUAL LOT ACCEPTABILITY 10-4

INSPECTION OF PROPERTY 8-2

INSTRUCTIONS FOR COMPLETING THE URAR 8-3

LAND USE REGULATION 3-9

LAND USES 4-7

LEAD-BASE PAINT 5-14

LEGAL DOCUMENTS (P.U.D.) 11-13

LEVEL OF TAXES AND ASSESSMENTS 4-19

MAPS 3-5

MARKET COMPARISONS 6-5

MANUFACTURED HOME LOT APPRAISALS 10-2

MANUFACTURED HOME LOTS 10-3

MARKET DATA 3-3

MARKETING EXPENSE 3-4

MARKETABILITY 4-14

MARKET PRICE COMPARISONS 6-10

MARKET VALUE AND MARKET PRICE 2-4

MECHANICAL EQUIPMENT AND ACCESSORIES 2-15

MISCELLANEOUS VALUATION DATA 3-17

MORTGAGE CREDIT REQUESTS FOR APPRAISALS 12-5

MANUFACTURED HOME LOT APPRAISAL REPORT 10-10

NEIGHBORHOOD CHANGE 4-13

NONCOMPLIANCE WITH GENERAL ACCEPTABILITY CRITERIA 5-11

NONPREPAYABLE SPECIAL ASSESSMENTS 3-14

SUBJECT PARAGRAPH

OBSOLESCENCE 2-7

OFF-SITE IMPROVEMENTS 5-7

OPERATING AND ABANDONED OIL OR GAS WELLS 4-22

OUTLYING LOCATIONS AND ISOLATED SITES 4-16

OVERIMPROVEMENT AND UNDERIMPROVEMENT 2-13

PHYSICAL AND SOCIAL ATTRACTIVENESS 4-21

PLANNED UNIT DEVELOPMENT 11-12

PLAUSIBILITY 2-17

POPULATION AND HOUSING STATISTICS 3-6

PREPAYABLE SPECIAL ASSESSMENTS 3-15

PRINCIPLE OF SUBSTITUTION 6-15

PROCESSING FORECLOSED MANUFACTURED HOME SITES 10-9

PROCESSING INDIVIDUAL LOT APPLICATIONS 10-5

PROCESSING THE SUBDIVISION APPLICATION 10-8

PROJECTS CONVERTED FROM RENTAL HOUSING (CONDOMINIUMS) 11-9

PROPERTIES ENCUMBERED BY EASEMENTS, RESTRICTIONS AND 12-4

RESERVATIONS

PROPOSED CONSTRUCTION 5-9

PROPOSED CONSTRUCTION (CONDOMINIUMS) 11-5

PROPOSED MANUFACTURED HOME SUBDIVISION CRITERIA 10-7

PURPOSE OF THE APPRAISAL 1-1

PURPOSE OF THE DESK REVIEW 9-1

PURPOSE OF LOCATION ANALYSIS 4-1

QUANTITY OF DATA 6-9

RELIABILITY OF SALES DATA 6-12

REMAINING ECONOMIC LIFE 5-23

RENT MULTIPLIERS 6-26

REPAIR INSPECTIONS 5-17

REPLACEMENT COST OF ON-SITE IMPROVEMENTS 6-16

SEASONAL RENTAL 6-23

SELECTING CASES FOR FIELD REVIEW 9-5

SELECTION OF COMPARABLES PROPERTIES (BRACKETING) 6-6

SELLER BUYDOWNS 6-4

SHARED WELLS 12-17

SINGLE INDUSTRY COMMUNITIES 4-11

SITES SOLD BY A PUBLIC BODY 6-18

SUBJECT PARAGRAPH

SMALL COMMUNITIES 4-15

SMOKE, FUMES, NOISE 4-28

SOIL TREATMENT WITH INDIVIDUAL WATER SYSTEMS 12-11

SOLAR ENERGY 12-21

SOURCE OF VALUE 2-2

SPECIAL CONDITIONS AFFECTING APPRAISAL ASSIGNMENT AREAS 3-10

SPECULATIVE SALES AND MODIFIED COST APPROACH 6-29

STANDARDIZED PREPRINTED SPECIAL CONDITION SHEET 5-16

STUDY OF FUTURE UTILITY OF PROPERTY 4-12

SUBDIVISIONS 3-11

TAXES AND SPECIAL ASSESSMENTS 3-13

TENANT-OCCUPIED PROPERTY (LEASEHOLDS) 6-31

TERMITES 4-29

THE METHOD OF ANALYSIS 4-4

TIME FRAME AND DOCUMENTS REQUIRED (FIELD REVIEW) 9-4

TOPOGRAPHY 5-5

TRANSPORTATION 4-9

UNDEVELOPED LOT 10-6

UREAFORMALDEHYDE FOAM INSULATION 12-20

USE OF CONVENTIONAL SALES DATA 6-7

USE OF MARKET PRICE IN VALUATION 6-2

USE OF REPLACEMENT COST OF PROPERTY IN VALUATION 6-13

UTILITIES AND SERVICES 4-10

VA-CRV CONVERSIONS 11-14

VALUATION INSTRUCTIONS FOR SPECIAL PROBLEMS AND PROCEDURES 12-1

VALUATION PERSONNEL 1-2

VALUATION PRINCIPLES 2-9

VALUE OF RENTAL INCOME PROPERTIES 6-20

VARIABLES IN RENT MULTIPLIERS 6-27

WATER AND SEWERAGE SYSTEMS 12-16

WEATHERIZATION PROGRAM 12-15