4150.1 REV-1

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CHAPTER 5. PROPERTY ANALYSIS.

5-1. ANALYSIS OF PHYSICAL IMPROVEMENTS. 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.

5-2. ANALYSIS OF SITE. 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.

5-3. HIGHEST AND BEST USE OF SITE. 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.

5-4. EXCESS LAND. 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.

5-5. TOPOGRAPHY. 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.

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4150.1 REV-1

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5-6. 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.

5-7. OFF-SITE IMPROVEMENTS. 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.

5-8. EASEMENTS, RESTRICTIONS, OR ENCROACHMENTS. 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.

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4150.1 REV-1

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5-9. PROPOSED CONSTRUCTION. 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.

5-10. EXISTING DWELLINGS AND DWELLINGS COMPLETED LESS THAN ONE YEAR
PRIOR

TO THE APPRAISAL WITHOUT HUD OR VA APPROVAL AND INSPECTIONS.

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.

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4150.1 REV-1

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5-11. NONCOMPLIANCE WITH THE GENERAL ACCEPTABILITY CRITERIA. 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.

5-12. CONDITIONS REQUIRING REPAIR.

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.

5-13. CONDITIONS NOT REQUIRING REPAIRS. 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.

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4150.1 REV-1

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(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.

5-14. LEAD BASED PAINT. 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

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4150.1 REV-1

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(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)

5-15. ADEQUACY OF FUNCTIONAL COMPONENTS. 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.

5-16. STANDARDIZED PRE-PRINTED SPECIAL CONDITION (v.c) SHEET. 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.

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5-17. REPAIR INSPECTIONS AND HOME INSPECTIONS.

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.

5-18. CODE ENFORCEMENT FOR EXISTING PROPERTIES.

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:

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4150.1 REV-1

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(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.

5-19. CERTIFICATION OF MECHANICAL EQUIPMENT. 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.

5-20. DESIGN. 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

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4150.1 REV-1

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(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.

5-21. CONFORMITY OF PROPERTY TO NEIGHBORHOOD. 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.

5-22. ANALYSIS OF THE ELEMENTS OF CONFORMITY. 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

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4150.1 REV-1

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(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

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4150.1 REV-1

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(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.

5-23. REMAINING ECONOMIC LIFE OF BUILDING IMPROVEMENTS. 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;

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2/90

5-11

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4150.1 REV-1

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(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.

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2/90

5-12

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4150.1 REV-1

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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.

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2/90

5-12a

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4150.1 REV-1

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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.

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I have received a copy of this Notice.

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Date Signature

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2/90

5-12b