RD Instruction 1922-C

Table of Contents

Page 1

PART 1922 - APPRAISAL

Subpart C - Appraisal of Single Family Residential Property

## [Table of Contents]{.underline}

[Sec]{.underline}. [Page]{.underline}

1922.101 General. 1

1922.102 Definitions. 1

Appraiser. 1

Appraisal report. 1

Cost calculation manual. 2

Depreciation. 2A

Depreciated replacement cost. 3

Economic life. 3

Effective age. 3

Final reconciliation/estimated value. 3

Leased fee value. 3

Leasehold value. 3

Living area. 3

Reproduction cost. 4

Residential property. 4

1922.103 Authorities. 4

\(a\) Contract appraiser. 4

\(b\) RHCDS employees. 4

1922.104 Influences on value. 4

\(a\) Factors to be considered. 4

\(b\) Factors not to be considered. 7

1922.105 Steps preliminary to writing the appraisal. 7

\(a\) Basic information on property. 7

\(b\) Analysis information. 7

\(c\) Inspection of the property, except Guaranteed\
Housing loans. 9

1922.106 \[Reserved\] 10

1922.107 Depreciation. 10

\(a\) Adjustments for depreciation. 10

\(b\) Accrued depreciation. 11

(10-27-95) SPECIAL PN

RD Instruction 1922-C

Table of Contents

Page 2

[Sec]{.underline}. [Page]{.underline}

1922.108 Appraisal of leasehold estate. 11

\(a\) Property as improved. 11

\(b\) Rent. 12

\(c\) Lease acquisition cost. 12

\(d\) Security value of leasehold. 12

1922.109 Writing the appraisal. 13

\(a\) Sales comparison approach. 13

\(b\) Cost approach. 14

\(c\) Income approach. (Non-Program only) 14

1922.110 Final reconciliation/estimated value. 14

\(a\) Indicated value by the sales comparison approach. 14

\(b\) Indicated value by the cost approach. 14

\(c\) Indicated value by the income approach. 15

\(d\) Final reconciliation/estimated market value. 15

\(e\) Valuation of buildings for insurance purposes. 15

1922.111 Abbreviated appraisal and revising existing appraisals. 15

\(a\) Abbreviated appraisal. 15

\(b\) Revised appraisal. 16

1922.112 Other acceptable appraisals. 16

1922.113 - 1922.150 \[Reserved\] 16

Exhibit A - Single Family Residential Appraisal Manual.

Exhibit A-1 - Single Family Residential Appraisal Sequential Analysis.

Exhibit B - Single Family Housing Income Approach for Nonprogram

Property.

Exhibit C - Guidelines For Contract Appraisals

Exhibit D - Single Family Housing Residential Appraisal Reviews

## oOo

RD Instruction 1922-C

PART 1922 - APPRAISAL

Subpart C - Appraisal of Single Family Residential Property

§1922.101 [General]{.underline}.

This subpart prescribes the policies and procedure for appraisals in
connection with making and servicing Single Family Rural Housing (RH)
loans on fee simple owned nonfarm and small farm real properties, and on
leaseholds on nonfarm and small farm real properties. Property will be
appraised for market value. In no case will an appraisal be made without
inspecting the property and, when applicable, reviewing all plans and
specifications for proposed improvements to the site.

§1922.102 [Definitions]{.underline}.

[Appraiser]{.underline}. A Rural Development employee or an individual
contracted with, as authorized by RD Instruction 2024-A, in accordance
with Exhibit C of this subpart may appraise a single family housing
property. (Revised 07-21-93, PN 209.)

[Appraisal report]{.underline}. An appraisal report is a supportable,
defensible, written report as of a specific date by an appraiser setting
forth an estimate of the value of a property, along with documentation
supporting the value estimate. The basic principles and methods of
appraising real estate outlined in Exhibits A, A-1, B, C, and D to this
subpart will be followed in making appraisals.

\(1\) A completed appraisal report contains:\
(Revised 01-27-93, PN 199.)

\(i\) The \"Uniform Residential Appraisal Report,\" which is the
equivalent to Form RD 1922-8, hereafter referred to as Form RD 1922-8,
completed in accordance with the Forms Manual Insert (FMI), for all
appraisals made under this subpart.

\(ii\) Market data on comparable sales of similar properties in the
Sales Comparison Analysis section of Form\
RD 1922-8. Use three comparable sales if available.

\(iii\) Form 1007, \"Square Foot Appraisal Form,\" when appraising
proposed or existing properties under 1 year of age, or when the
estimated market value of a property is based on the cost approach.

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

DISTRIBUTION: WSDC REAL PROPERTY

APPRAISAL

## 1

## (Revision 2)

(02-27-91) PN 158

RD Instruction 1922-C

§1922.102 (Con.)

\(2\) [Types of appraisals]{.underline}. The County Supervisor when
making a request for a contract or fee appraisal will indicate the
purpose of the appraisal such as loan making, foreclosure sale, etc.
(Revised 01-27-93, PN 199.)

\(i\) Appraisals for loan making purposes (new construction/existing
dwellings requiring development) and the sale of repaired inventory
property will be made on an \"as developed/improved\" basis. (Revised
01-27-93, PN 199.)

\(ii\) Appraisals for loan making purposes (existing dwellings requiring
no repairs), loan servicing, acquisition of inventory property, and the
sale of unrepaired inventory property will be made on an \"as is\"
basis.

\(iii\) Appraisals being made when repairs are planned may be on an \"as
is\" basis and contain an \"as developed/improved\" value documented in
the Reconciliation section of Form RD 1922-8, included as part of the
appraisal. The appraiser will attach as an addendum to Form RD 1922-8
the itemized list of repairs, prepared either by the appraiser or the\
County Supervisor in accordance with §1922.105 (c) of this subpart,
indicating the cost to repair and the contributory value of each repair
item. In estimating the contributory value, it should be noted cost does
not always equal value and in some cases, several individual repair
items must be considered in the aggregate before they are recognized by
the general real estate market as contributing to value. This addendum
must support any difference between the \"as is\" and the \"as
developed/improved\" values. In the case of inventory property, the
appraisal will be reviewed at the time the property is listed/posted for
sale to see if the appraisal accurately reflects the current market
value of the property. (Revised 01-27-93, PN 199.)

[Cost calculation manual]{.underline}. A manual or handbook published on
a national basis, approved by the National Office, that is used to
estimate the depreciated replacement cost of single family residential
structures and other site improvements.

## 2

## (Revision 2) 

§1922.102 (Con.) RD Instruction 1922-C

[Depreciation]{.underline}. A decline in market value of dwelling and
related facilities from the time improvements were constructed to the
time an appraisal is made. Depreciation may result from:

\(1\) Physical deterioration, such as wear and tear, etc., to a
structure and other site improvements that are subject to deterioration.

\(2\) Functional obsolescence, such as inadequacies or overadequacy due
to size, design, style, age; changes in taste of the general public; the
high cost of heating and cooling dwellings that cannot economically be
made energy efficient, etc.

\(3\) Location/Economic obsolescence is caused by forces external to the
property; such as changes in use, or poorly maintained properties in the
neighborhood, decline in area employment, noise or other pollution, a
decline in the purchasing power of potential buyers, etc.

## 2A

## (Added 01-27-93, PN 199)

(02-27-91) PN 158

RD Instruction 1922-C

§1922.102 (Con.)

[Depreciated replacement cost]{.underline}. The calculated cost less
deductions for depreciation of replacing a structure of equal utility
that conforms to present day standards. Replacement cost may be
significantly less than the cost of reproducing an older outdated
structure or a new structure that is overbuilt or does not conform to
current market standards.

[Economic life]{.underline}. When applied to single family dwellings,
the normal time a dwelling is expected to remain suitable as a
residence, taking into consideration a normal depreciation rate. This
may vary significantly from the remaining physical life of the
structure. Economic life minus effective age equals remaining economic
life.

[Effective age]{.underline}. The age of the dwelling taking into account
any remodeling or refurbishment that has been accomplished or is planned
to take place immediately and deterioration or abuse of the property
that will not be included in any planned improvements. Effective age
usually will be less than actual age when significant refurbishment has
taken place, or greater than actual age if the property has deteriorated
more than typical properties of the same age.

[Final reconciliation/estimated value]{.underline}. The final estimate
of market value after weighing the relative significance,
supportability, and reliability of the market data and cost approaches;
the most probable price a property should bring, as of a specific date,
in a competitive and open market, assuming the buyer and seller are
prudent, knowledgeable and the price is not affected by undue stimulus
such as forced sale or loan interest subsidy.

[Leased fee value]{.underline}. This is the value of the landlord\'s
rights to the property being leased.

[Leasehold value]{.underline}. This is the value of the tenant\'s rights
under the lease that can be transferred or sold to another party.

[Living area]{.underline}. Living area will include only finished area
as determined by the exterior dimensions of the dwelling. (Revised
10-27-95,\
SPECIAL PN.)

## 3

## (Revision 3)

(02-27-91) PN 158

RD Instruction 1922-C

§1922.102 (Con.)

[Reproduction cost]{.underline}. The estimated cost of reproducing an
exact duplicate or replica of a structure using the same materials,
construction standards, quality of workmanship, layout, design, and
incorporating all the deficiencies and superadequacies (functional
obsolescence) of the subject structure. Reproduction cost less the sum
of physical depreciation, functional and economic/locational
obsolescence equals depreciated replacement cost.

[Residential property]{.underline}. The site and all improvements to the
site, including the dwelling.

§1922.103 [Authorities]{.underline}.

\(a\) [Contract appraiser]{.underline}. An individual contracted with,
as authorized by RD Instruction 2024-A, in accordance with Exhibit C of
this subpart may appraise a single family housing property. Contract
appraisals will be completed in accordance with this subpart and RD\
Instruction 2024-A. (Revised 07-21-93, PN 209.)

\(b\) [RHCDS employees]{.underline}. Employees whose job descriptions
contain appraisal responsibilities, after receiving the required
training and written delegation from a State Director, are authorized to
make appraisals. The employee\'s immediate supervisor will recommend the
employee be designated to make appraisals after determining he or she
has:

\(1\) Satisfactorily inspected at least two properties not previously
used by Rural Housing and Community Development Service (RHCDS) for
sales comparison and completed corresponding Forms RD 1922-12, \"Nonfarm
Tract Comparable Sales Data,\" for those comparables; and

\(2\) Satisfactorily prepared at least two appraisals on Form\
RD 1922-8 and Form 1007.

§1922.104 [Influences on value]{.underline}.

\(a\) [Factors to be considered]{.underline}.

\(1\) [Location]{.underline}. Location is one of the greatest influences
on real property value. A location near railroads, commercial or
industrial plants, landfills, cemeteries, airports, etc., or too distant
from employment opportunities may adversely affect a residential
property value, whereas a location in a quiet residential area near good
employment, schools, shopping, public services, etc., may enhance
property value.

## 4

## (Revision 3) 

RD Instruction 1922-C

§1922.104 (a) (Con.)

\(2\) [Supply and demand]{.underline}. If the market area has an
oversupply of residential properties and/or building sites for sale or
depressed economic conditions exist, a negative effect on property value
will normally be observed. When the supply of residential properties or
suitable building sites is short and/or the general economy is good, a
positive effect on residential property values may be observed.

\(3\) [Replacement cost]{.underline}. Cost does not directly create or
maintain value; however, cost does have an influence on value and will
be considered when estimating value of improvements to a site.

\(4\) [Highest and best use of the site]{.underline}. The site and the
improvements to the site will be valued separately. However, for loan
making purposes, the value estimate of the site will not exceed its
value as a residential site, based on market data on actual sales of
similar residential sites in the area. For other than loan making
purposes, when an alternate use of the site indicates a site value
greater than the value of the improved site, the higher value will be
used.

\(5\) [Accrued depreciation]{.underline}. This is a combination of
physical deterioration, functional and economic/locational obsolescence.

\(6\) [Use restrictions]{.underline}. Easements, rights-of-ways,
subdivision covenants, zoning, and deed restrictions, etc., affect
value.

\(7\) [Utilities]{.underline}. Availability, reliability, quality of
utility service and cost to obtain suitable water supply, sewer, gas,
electrical and other utility services affect value.

## 5

## (Revision 1)

(02-27-91) PN 158

RD Instruction 1922-C

§1922.104 (a) (Con.)

\(8\) [Taxes and assessments]{.underline}. Tax rates and other public
assessments as compared to rates in other similar neighborhoods in the
market area affect value.

\(9\) [Homogeneity]{.underline}. Similarities to other properties in the
neighborhood; for example, a property overbuilt for the neighborhood in
an older or deteriorating neighborhood may have a value less than its
replacement cost.

\(10\) [Site]{.underline}. Topography, size, shape, drainage, general
suitability of the site and site view for residential purposes and site
development in addition to the dwelling must be considered in estimating
the value of the site.

\(11\) [Financing]{.underline}. Terms, availability of funds, interest
rates and cost of obtaining long-term loans, including but not limited
to RHCDS RH loans, have an influence on the value of property.

\(12\) [Construction]{.underline}. Living area, room arrangement,
garages, porches, built-in equipment, storage, parking facilities,
basement, quality of construction, and \"value in use\" of certain
energy efficient and/or solar items affect value. Exhibit D of RD
Instruction 1922-B will be used when estimating value in use of any
energy-saving component. (Revised 10-27-95, SPECIAL PN.)

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## (Revision 1) 

RD Instruction 1922-C

§1922.104 (a) (Con.)

\(13\) [Street improvements]{.underline}. Street improvements adjacent
to the property and the type of roads leading to the neighborhood affect
value.

\(b\) [Factors not to be considered]{.underline}.

\(1\) Amount of existing liens or debts secured by the property;

\(2\) Proposed sale price or bid amount to build the structure;

\(3\) Amount of Rural Development loan requested;

\(4\) Sex, age, race, national origin, color, religion or handicap(s) of
residents of the neighborhood or community; and

\(5\) Appraisals for voluntary conveyances and foreclosure will not
reflect any consideration of a forced sale, unpaid balance of Rural
Development loan(s), other liens against the property, or cost of
acquisition.

§1922.105 [Steps preliminary to writing the appraisal]{.underline}.

The appraisal will be made only when sufficient information has been

developed to enable the appraiser to properly evaluate the property.

\(a\) [Basic information on property]{.underline}. As a minimum, the
property legal description, address, plat, subdivision and/or
neighborhood map, tax information, recording information, and complete
plans and specifications of any planned improvements should be obtained
by the appraiser prior to beginning the appraisal.

\(b\) [Analysis information]{.underline}. The appraiser will consider
general economic conditions of the market area and obtain additional
information which he or she considers pertinent to the appraisal. The
appraiser should examine the community and the neighborhood before
inspecting the site.

\(1\) [Community analysis]{.underline}. The appraiser needs pertinent
information about the history and growth of the community. The
collection, analysis and interpretation of community data helps the
appraiser to determine the relative competitive position of a property
in the total market. A knowledge of how and why the community grew and
an understanding of its economic trends enables the appraiser to better
understand the factors influencing the value of real property. The
community factors to consider include:

\(i\) population - increase or decrease;

\(ii\) geography - i.e., topography, etc.;

## 7

(02-27-91) PN 158

RD Instruction 1922-C

§1922.105 (b) (1) (Con.)

\(iii\) roads and public transportation service;

\(iv\) employment wages and other income sources;

\(v\) medical facilities;

\(vi\) schools;

\(vii\) volume of new construction;

\(viii\) number of homes (new and old) being offered for sale in the
market area;

\(ix\) fire and police protection;

\(x\) availability of suitable building sites;

\(xi\) shopping facilities; and

\(xii\) other financing available in the area.

\(2\) [Neighborhood analysis]{.underline}. Neighborhoods are divisions
or sections of a community or city which are usually homogeneous in some
respect. Neighborhoods customarily pass four stages of life: building,
static, declining, and rebuilding. In measuring the desirability of
neighborhoods, features such as the number of unoccupied homes, age and
condition of nearby properties, etc., should be studied and compared.

\(3\) [Site analysis]{.underline}. The importance of location cannot be
overemphasized. The location of a community, city, or neighborhood to
available job opportunities, places of worship, schools, medical care,
shopping, etc., is as important as the location of the property within
its own neighborhood. Other factors to consider about the site are:

\(i\) Frontage, width, depth, shape of the lot,

\(ii\) total usable area of the lot,

\(iii\) lot topography,

\(iv\) natural hazards, such as flood plains, sink holes or localized
flooding,

\(v\) the presence of hazardous waste, including underground storage
tanks. (The cost of removal or repair must be determined before the
appraisal can be completed),

## 8

##  

RD Instruction 1922-C

§1922.105 (b)(3) (Con.)

\(vi\) view from the site, and

\(vii\) utilities available.

\(c\) [Inspection of the property, except Guaranteed Housing
loans]{.underline}. The County Supervisor may make a suitability
determination without an inspection if he/she has sufficient knowledge
of the property. The County Supervisor may inspect the property to
determine suitability and prepare an itemized list of repairs prior to
requesting an appraisal from a contractor or Rural Development staff
appraiser. If the inspection reveals the property cannot be made
suitable for the Rural Development program, an appraisal will not be
made except for inventory property. After receiving the request, the
appraiser will inspect the site, and all improvements to the site, at
such time and under such conditions that the entire property can be
adequately evaluated. If instructed to, the appraiser will provide an
itemized list of repairs and the estimated cost to repair these items.
In the case of planned improvements, a thorough evaluation of the plans
and specification of the improvements to be made, should be completed to
determine if the improvements are suitable for the site and any existing
improvements. (Revised 01-27-93, PN 199.)

\(1\) The appraiser, after locating and identifying the property, must
check boundary lines against the plat and legal description. This is
essential in order to be certain the improvements to the site are
totally on the site and do not encroach on adjoining property.

\(2\) When inspecting an existing structure, the appraiser will
determine the condition of the structure, and estimate depreciation and
cost to repair individual items that are determined to need repair or
replacement in order for the structure to meet minimum property
requirements and Rural Development thermal standards. The appraiser will
determine the total living area, storage, basement, and parking area by
actual measurements made during the inspection of an existing structure;
for proposed construction, measurements will be made from the building
plans. (Revised 01-27-93, PN 199.)

## 9

## (Revision 1)

(02-27-91) PN 158

RD Instruction 1922-C

§1922.105 (c) (Con.)

\(3\) If the house is under construction or less than one year old and
an individual water or sewage system is involved, include a
certification by the builder that the house and any water and waste
disposal systems have been or will be built or installed in accordance
with the local building codes, plans and specifications. Evidence of
approval by health authorities having jurisdiction in the area also will
be included. If the house is one year or more old, the appraiser will
require approval of individual water and/or sewage systems by health
authorities or, in a case where no State or local health authority
exists, by a person or firm qualified to determine the adequacy and
safety of such systems.

\(4\) The date the real property is inspected will be the date placed in
the reconciliation section of Form RD 1922-8. (Renumbered 01-27-93, PN
199.)

\(5\) Photographs of the property will be attached to Form\
RD 1922-8. Photographs will provide front, rear and side views of the
property, including the \"street appeal\" aspects of the property.
(Renumbered 01-27-93, PN 199.)

§1922.106 \[Reserved\]

§1922.107 [Depreciation]{.underline}.

Adjustments to reproduction cost and the sales comparison analysis that
reflect a decrease in value of a structure or other improvements to the
site due to physical deterioration and/or functional and external
obsolescence will be determined. Land and improvements to the site such
as wells, etc., do not depreciate but may change in value.\
(Revised 01-27-93, PN 199.)

\(a\) [Adjustments for depreciation]{.underline}.

\(1\) [Physical depreciation]{.underline}. Adjustments to the cost
approach and the sales comparison analysis that reflected an decrease in
value of a structure or other improvements to the site due to physical
deterioration will be determined. Physical depreciation may be
determined using the Marshall and Swift residential cost handbook,
Section E, Depreciation. These depreciation tables are based on an
extended life theory which encompasses a remaining life and effective
age approach. The effective age and the typical expectancy rate are used
to determine the overall physical depreciation percentage. (Revised
01-27-93, PN 199.)

## 10

## (Revision 1) 

> RD Instruction 1922-C

§ 1922.107(a) (Con.)

\(2\) [Functional obsolescence]{.underline}. Any design or feature of a
dwelling that is not acceptable to the typical buyer in the market area
will be identified by the appraiser on the inspection visit to an
existing dwelling or in the review of plans and specifications of a
dwelling to be built. All items affecting the livability and
marketability of the property will be recorded in the appraisal report.
The appraiser will measure the value difference in the subject property
caused by functional obsolescence by comparing properties that have sold
that do meet the livability and marketability demands of the typical
purchaser. The appraiser must be familiar with the taste and desires of
the typical purchaser in the market area in order to support the
estimate of value loss due to functional obsolescence of a property.
Exhibit A of this subpart outlines the parts of a property and design
items to consider when estimating functional obsolescence. (Revised
01-27-93, PN 199.)

\(3\) [External obsolescence]{.underline}. Any factor outside the
property boundary that causes real property to be worth less because of
its location is an external obsolescence factor. The community,
neighborhood and site analysis will form the basis for making this
estimate. The actual dollar adjustment estimate for external
obsolescence will be based on a comparison of sales prices of similar
properties in similar and nonsimilar locations. Exhibit A of this
subpart explains market data extraction of external obsolescence and
sources of economic trend data. (Revised 01-27-93, PN 199.)

\(b\) [Accrued depreciation]{.underline}. The sum of physical
depreciation, and functional and external obsolescence equals accrued
depreciation and will be reflected in the sales comparison approach and
cost approach. (Revised 01-27-93, PN 199.)

§ 1922.108 [Appraisal of leasehold estate]{.underline}.

Prior to making an appraisal for loan making purposes involving a
leasehold, the appraiser must determine if the lease complies with the
requirements 7 CFR part 3550. The value of the leased fee will not be
estimated under this subpart. (Revised 01-23-03, SPECIAL PN.)

\(a\) [Property as improved]{.underline}. Estimate the market value of
the property \"as improved\" as though the property was owned under a
good and marketable fee title. Estimate the market value of the site on
an \"as is\" basis as if no improvements exist or are to be made or
placed on the site and subtract from \"as improved\" property value.

## 11

## (Revision 2)

(02-27-91) PN 158

RD Instruction 1922-C

§ 1922.108 (Con.)

\(b\) [Rent]{.underline}. Estimate the amount of rent that customarily
is paid in the area for similar sites leased under similar terms.

\(c\) [Lease acquisition cost]{.underline}. Where a lease acquisition
cost is involved, determine the total annual leasehold cost of the site
as if vacant. In making this determination the appraiser will consider
the amount of annual rent to be paid under the lease plus the annual
loan payment required on the portion of the RH loan used to acquire the
leasehold site. The sum of these should not exceed the amount an
applicant would need to pay on a loan to buy a similar site with fee
simple title.

Example: Present market value of the site as if owned with fee simple
title is \$5000. Amortization factor for 33-year loan at 12 percent
interest with monthly payments is .0102 per \$1.00 of loan.

\$5000 X .0102 = \$51/month

\$51 X 12 mos. = \$612 (annual payment on the site if owned with fee
simple title)

Lease acquisition cost is \$2000. Amount of annual rent is \$300 \$2000
X .0102 = \$21/mo. (rounded up to nearest dollar)

\$21 X 12 = \$252 annual payment on leasehold acquisition fee.\$252 plus
\$300 (annual rent) equals an annual leasehold cost of \$552.

Since the total annual cost of the leasehold interest in the site in
this example is less than what the annual payment would be on the site
as if owned with fee simple title, the \$2,000 lease acquisition fee
would be reasonable. The lease acquisition \"value\" will be documented
on Form 1007 and would be adjusted downward if the total annual cost of
the leasehold exceeded the annual cost of an identical fee simple owned
site.

\(d\) [Security value of leasehold]{.underline}. The maximum security
value of a leasehold interest (recommended market value of the
leasehold) which will be documented on Form 1007, including improvements
to be made to the leasehold site, will not exceed the market value of
the improved property less the \"as is\" value of the site as if owned
with fee simple title, plus the market value of the leasehold site.

EXAMPLE:

Market value of the property \"as improved\" as if owned

with fee title\...\...\...\...\...\...\...\...\...\...\...\....\$40,000

Less market value fee title owned site \"as is\"\.....\$ 5,000

Market value of improvements\...\...\...\...\...\...\.....\$35,000

Acquisition Cost of leasehold site (unimproved)\....\$ 2,000

Maximum security value of leasehold property \"as
improved\"\...\...\...\...\...\...\...\...\...\...\...\...\...\...\$37,000

## 12

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RD Instruction 1922-C

§1922.108 (d) (Con.)

Complete Form RD 1922-8 with a full explanation as to how the value
estimates were arrived at and what factors were considered in estimating
the maximum security value for a loan being made on the leasehold.

§1922.109 [Writing the appraisal]{.underline}. (Revised 01-27-93, PN
199.)

In order to analyze and evaluate the influence on the value of a
property by the factors outlined in this subpart and Exhibit A of this
subpart, the following steps, as a minimum, will be followed by the
appraiser.

\(a\) [Sales comparison approach]{.underline}. Collecting, verifying and
analyzing sales of comparable properties in the market area will provide
a basis for completing the Sales Comparison Analysis section of Form RD
1922-8. Information on each comparable sale will be recorded on Form RD
1922-12, after inspecting the property. A photograph of the comparable
sale will be attached to Form RD 1922-12. Comparable sales less than 1
year old with nonsubsidized financing from lenders other than Rural
Development should be used in the market data analysis. A National
Office exception may be granted on a quarterly basis, to permit the use
of comparable sales financed by Rural Development, provided, the State
Director certifies in writing that nonsubsidized financed comparable
sales are not available within a specific geographic location within the
State. Documentation to support a National Office exception request will
include a detailed analysis of the real estate market situation from the
County Supervisor, District Director, and the State Office Single Family
Housing Appraisal Trainer. Only \"arms length\" sales will be used.
Market value of the site should be obtained by using comparable sales
data for other building sites sold in the area. Dollar adjustments for
differences in financing concessions, time of sale, location and
physical characteristics will be made in accordance with the
chronological order of adjustment categories identified on Form RD
1922-8. All adjustments to comparables will be based on paired sales
extraction, cost estimates, and market surveys of value differences. The
cost estimates and market survey methods of making adjustments to
comparables will be used only when data extracted from paired sales
cannot be obtained. Comparable sales closest to the subject are the most
desirable and the best indicator of value, but if comparable sales in
the immediate area are nonexistent, the distance may be increased to the
nearest similar communities where comparable sales have occurred. All
adjustments to comparables will be based on market extraction, unless
the data is not available, then cost estimates and market surveys of
value differences may be used.

## 13

## (Revision 1)

(02-27-91) PN 158

RD Instruction 1922-C

§1922.109 (a) (Con.)

Written explanation and documentation to support adjustments should be
available when the appraisal reviewer requests an explanation for an
adjustment. An appraisal reviewer may want to request documentation when
an individual adjustment exceeds 10 percent of the comparable\'s sale
price or when the net adjustments exceed 15 percent or the gross
adjustments exceed 25 percent of the comparable\'s sale price.

\(b\) [Cost approach]{.underline}. The Marshall and Swift Residential
Cost Handbook square foot method will be used to complete Form 1007 for
all proposed and existing properties under 1 year of age or when the
estimated market value of a property is based on the cost approach. The
cost approach will provide a comparison to the sales comparison approach
in determining the property value of proposed and existing properties
under 1 year of age. The appraiser may use value determined by the cost
approach for these properties if higher than the sales comparison
approach, providing supporting documentation justifying the value is
attached to Form RD 1922-8. The cost approach will be considered for
other properties in accordance with the Uniform Standards of
Professional Appraisal Practices (USPAP). In all cases, the Estimated
Reproduction Cost -New- of Improvements section of Form RD 1922-8 will
be completed in accordance with the FMI.

\(c\) [Income approach]{.underline}. The income approach to value may be
used in conjunction with non-program inventory property (see Exhibit B
of this subpart) and may be considered, but not normally used to
determine value when appraising program properties for loan processing
activities.

§1922.110 [Final reconciliation/estimated value]{.underline}.

\(a\) [Indicated value by the sales comparison approach]{.underline}.
The appraiser will make an estimate of value by the sales comparison
approach after reviewing the similarity of each comparable sale to the
subject. The final indicated value by sales comparison approach on Form\
RD 1922-8, will be tempered by the degree of similarity and reliance
placed on each of the different comparable sales and will not be an
average of the three indicated values.

\(b\) [Indicated value by cost approach]{.underline}. The appraiser will
enter the value indicated by completing the cost approach in the
Estimated Reproduction Cost -New- of Improvements section of Form RD
1922-8. (Revised 01-27-93, PN 199.)

## 14

## (Revision 1) 

§1922.110 (Con.) RD Instruction 1922-C

\(c\) [Indicated value by the income approach]{.underline}. The
appraiser may enter the value indicated by the income approach in the
Indicated Value by Income Approach section of Form RD 1922-8. This
approach may be used and is considered an optional approach for use in
accordance with this subpart. (Revised 01-27-93, PN 199.)

\(d\) [Final reconciliation/estimated market value]{.underline}. The
estimated market value in the Reconciliation section of Form RD 1922-8
will never exceed the higher of the values indicated by the sales
comparison approach or the cost approach and may exceed the lower of the
two indicated values only when the appraiser includes justifying and
supporting documentation in the appraisal report. The appraiser will
enter the estimated market value in the Reconciliation section of Form
RD 1922-8. The appraiser will justify and support the reconciled
estimate of market value on Form RD 1922-8, or attach an addendum, after
analyzing the appropriate approaches to value utilized in the completion
of the residential appraisal assignment. (Revised 01-27-93, PN 199.)

\(e\) [Valuation of buildings for insurance purposes]{.underline}. The
value of buildings for insurance purposes will be the amount indicated
on Line 29 of Form 1007 for proposed and existing properties less than 1
year of age. For properties over 1 year the value will be the
depreciated value of improvements from the Estimated Cost -New- of
Improvements section of Form RD 1922-8. (Revised 01-27-93, PN 199.)

§1922.111 [Abbreviated appraisal and revising existing
appraisals]{.underline}.

A complete new appraisal will be made for each property requiring an
appraisal except:

\(a\) [Abbreviated appraisal]{.underline}. An abbreviated appraisal may
be made for property to be built when:

\(1\) The property being appraised is identical, except for minor
differences, with a property appraised not more than 90 days prior to
the date of the abbreviated appraisal and is located on an equally
desirable site within the same subdivision. A copy of all appraisal
documents from the first appraisal, \"the master appraisal,\" will be
attached to, and will become a part of Form RD 1922-8, for the
abbreviated appraisal.

## 15

## (Revision 1)

(02-27-91) PN 158

RD Instruction 1922-C

§1922.111 (a) (Con.)

\(2\) All items on the abbreviated appraisal that differ from the
property being appraised, such as property address, legal description,
applicant\'s name and reconciliation/estimated value will be completed
along with a narrative explanation of any adjustments made and any
differences in final value estimate.

\(b\) [Revised appraisal]{.underline}. An existing appraisal may be
revised when an accurate estimate of present market value can be
determined without making a complete new appraisal and the following
conditions exist:

\(1\) The appraisal being revised is not more than 1 year old;

\(2\) Adequate narrative documentation attached to support the revised
estimate of value;

\(3\) Substantial changes have not been made to the property; and

\(4\) Property had been inspected by the appraiser.

§1922.112 [Other acceptable appraisals]{.underline}.

A Housing and Urban Development/Federal Housing Administration (HUD/FHA)
or Veterans Administration (VA) appraisal no more than 3 months old,
that was paid for by the Rural Development applicant, may be accepted
and the market value used for loan making purposes. The house must be
program suitable and must not need additional repairs, other than those
noted in the HUD/FHA or VA appraisal, to make it program eligible. The
appraisal must be delivered directly from the appraiser to Rural
Development. (Added 01-27-93, PN 199.)

§§1922.113 - 1922.150 \[Reserved\]

Attachments: Exhibits A, A-1, B, C, and D.

## oOo

## 16

## (Added 01-27-93, PN 199) 

RD Instruction 1922-C

Exhibit A

## Single Family Residential Appraisal Manual

## Table Of Contents

Page

Part I General 1

Part II Need for Understanding How the Real

Estate Market Functions 1

Part III Residential Neighborhood Analysis 2

Part IV Site and Site Improvement Analysis 6

Part V Sales Comparison Approach to Value 9

\(a\) Sales or Financing Concessions 13

\(b\) Date of Sale/Time 15

\(c\) Location 15

\(d\) Site/Site View 17

\(e\) Design and Appeal 17

\(f\) Quality of Construction 18

\(g\) Age and Condition 18

\(h\) Above Grade Room Count - Gross Living Area (Size) 20

\(i\) Basement and Basement Finished Rooms 21

\(j\) Functional Utility 22

\(k\) Heating/Cooling 25

\(l\) Garages/Carports and Outside Storage 25

\(m\) Porches-Patios-Pool, etc 26

\(n\) Special Energy Efficient Items 26

\(o\) Fireplaces 28

\(p\) Other 28

Part VI Replacement Cost Approach 29

Part VII Reconciliation and Estimated Market Value 31

## oOo

(01-27-93) PN 199

RD Instruction 1922-C

Exhibit A

Single Family Residential

Appraisal Manual

Part I. [General]{.underline}.

This manual is to serve as a guide for Rural Development employees in
appraising single family residential properties. The final value
estimate in an appraisal report must be supportable and defensible and
must be based on factual data and sound judgment by the appraiser. The
appraiser must use acceptable terminology in all narrative documentation
and follow sound principles and practices that have been proven and
accepted in the appraisal field. One must never become a theorist and
fail to apply logic and good judgment in making conclusions when
estimating the value of a property. When the appraiser understands the
proper concepts and theories of appraising, he/she should be able to
support all judgment decisions and estimates in an appraisal report with
data extracted from arms length sales of similar properties in the
market area and realistic depreciated replacement cost estimates. This
manual will explain the methods of adjusting comparable sales,
estimating depreciated replacement cost, collection of sales data,
market analysis and inspecting a property, that are accepted by the
major appraisal organizations.

Part II. [Need for understanding How the Real Estate Market
Functions]{.underline}.

An appraisal of real estate is an estimate of the value of a certain
parcel of land with all existing and/or planned improvements thereon as
of a specific date. The value of a certain parcel of real estate is
determined by buyers and sellers of similar parcels with similar
improvements in the market area and not by the appraiser. The job of an
appraiser is to collect data on properties that have sold and through
the process of market data comparison and analysis, apply that data to
property being appraised (subject property) and estimate the value of
the subject property. An estimate of depreciated replacement cost of the
subject property is used as a second approach in the appraisal process.
Because of the large varieties of sizes, designs, location differences
and quality of properties, it is not likely that an appraiser will find
two or more identical properties. For this reason, the appraiser must be
trained in making adjustments to comparable sales that will lead to a
logical conclusion of a final market indication of value of the subject
property. The final estimate of value must always be based on actual
sales of comparables, valid cost, and depreciation estimates and
tempered by sound judgment by the appraiser. The appraiser must
understand that a purchaser would usually pay no more for an existing
improved parcel of real estate than he/she would have to apply for a
similar unimproved Parcel of real estate and construct improvements with
equal utility to the property being appraised. For this reason, when
appraising an improved property, the appraiser must always estimate the
value of the site as if vacant, then estimate the depreciated
replacement cost of all existing and planned

(3-31-89) SPECIAL PN

RD Instruction 1922-C

Exhibit A

Page 2

improvements to the site as if they were to be constructed new using
modern materials. When an appraisal is being made of a vacant site to be
improved, the appraiser must estimate the cost of the planned
improvements in order to determine if the bids to make the improvements
are reasonable and if the total cost of the improved property is in line
with what similar properties are selling for in the area. Whether an
appraisal is being made on an improved or unimproved property, the value
of the site, as if vacant, must be based on sales of vacant sites in the
area that have sold. Comparable sire sales must be adjusted to the
property being appraised to account for differences in location, size,
desirability, etc.

Buyers and sellers of residential properties are influenced by many
different aspects of a particular property. Different buyers have
different opinions, reasons, and constraints in buying a property. For
these reasons, sales of almost identical properties in different areas
may vary. Once the appraiser understands how the real estate market
functions and why properties vary in value, the methods of making
adjustments to comparable sales, estimating replacement costs, and
depreciation are easier to understand.

Part III. [Residential Neighborhood Analysis]{.underline}.

A residential neighborhood is defined as a portion of a community where
there is a homogeneous grouping of homes and inhabitants. The
inhabitants generally consist of residents with similar levels of
incomes and interests. Neighborhood boundaries may consist of well
defined natural or man made barriers, such as a major highway, river, or
a distinct change in land use. In many cases, adjoining neighborhoods
will have no distinct boundary. For example, a neighborhood of 1,800
square feet to 2,000 square feet expensive homes may border a
neighborhood with much smaller homes. Neighborhood analysis begins with
identifying the neighborhood boundaries. When comparable property data
from property sales in another neighborhood is used, the appraiser will
comment in the narrative documentation portion of the appraisal on any
value difference caused by the difference in location. There may also be
differences in values within the same neighborhood due to site features
that enhance or detract from the value of a specific property.

One of the most difficult jobs of the appraiser is to measure change in
value of a property due to economic obsolescence; this is the influence
on value of a property from factors outside its boundaries. In order to
support an estimate of economic obsolescence, the appraiser must first
analyze the internal physical neighborhood features, then factors
external to the neighborhood, and document the reasons for any value
differences.

RD Instruction 1922-C

Exhibit A

Page 3

This forms the basis for supporting the estimate of economic
obsolescence in the accrued depreciation adjustment for location
difference in the market data analysis section of Form RD 1922-8,
\"Uniform Residential Appraisal Report.\" This same amount of adjustment
should be added to the depreciation section, Line 29, on Form 1007,
\"Square Foot Appraisal Form\" in the replacement cost approach.

The depreciation tables in Section E of the Marshall and Swift
Residential Cost Handbook or any other similar publication cannot be
used to assist in estimating value loss due to economic obsolescence.
The Marshall and Swift Section E tables provide a guide for estimating
the physical deterioration and functional obsolescence of improvements
to the site, which when combined with economic obsolescence equals
accrued depreciation on line 29 of Form 1007.

A modest new home built according to government minimum property
requirements and Rural Development thermal standards would not have any
accrued depreciation due to physical deterioration; however, the
appraiser may observe depreciation due to economic and functional
obsolescence.

A. [Internal Physical Neighborhood Features]{.underline}.

Properties in a neighborhood may vary in value due to site desirability
and location within the neighborhood. Measuring economic obsolescence
due to a property\'s location within its neighborhood can be
accomplished when data from property sales in a particular area of the
neighborhood is compared with data from similar property sales in
another area of the neighborhood that have more or less desirable
location features. An example would be a property on a heavily traveled
street versus a similar property on a quiet dead end street. Sales data
meeting this description are seldom available and the appraiser must
rely on past experience and good judgment to document why a similar
property in a neighborhood varied in value due to its location within
the neighborhood. Just as different dwellings can have several internal
features that cause their values to vary, so do neighborhoods. The
appraisal process involves the analysis of these internal physical
neighborhood features in order to estimate their effect on property
values in a particular neighborhood. When inspecting the neighborhood,
the appraiser must be particularly observant of changes in land use,
extent of land development, access to schools, shopping, public street
improvements, and available transportation, hazards such as
susceptibility to flooding, ages, condition and style of dwellings,
maintenance and care of the homes, vacant homes, crime, vandalism,
tenant occupied homes, overall general appearance, and desirability of
the neighborhood. The appraiser\'s documentation in the appraisal report
should adequately describe such neighborhood features and their
influence on the value of the subject property. The racial or ethnic
makeup of a neighborhood will not be considered in neighborhood analysis
and the appraiser will make no reference to race or code phrases as
proxies for race in the

(3-31-89) SPECIAL PN

RD Instruction 1922-C

Exhibit A

Page 4

appraisal report. For an appraiser to consider the racial makeup of the
neighborhood as having an influence on property values is called
\"racial redlining\" and is illegal under federal law.

Deed restrictions, subdivision covenants, easements, etc. may affect
property values. These factors are not always obvious and may require
research by the appraiser from the public records. Title opinions from
designated attorneys on other properties financed by Rural Development
in the same neighborhood are an excellent source for this information.
To determine if these types of restrictions affect the value of a
property, the appraiser must make a comparison of property sales prices
in areas with restrictions versus areas without restrictions.

B. [Features External to the Neighborhood that Influence Property
Values]{.underline}.

Although a neighborhood\'s internal physical features cause values to
vary and must be analyzed by the appraiser, neighborhood analysis also
involves observing and studying several factors that are outside the
boundaries of the neighborhood. Three factors that should be considered
are:

1\. [Physical (external to the neighborhood)]{.underline}. These factors
are almost always apparent to the appraiser. Determinants, such as
nearby industrial plant odors, noise from nearby heavily traveled
highways, airports, etc., affect residential property values. The change
in value, economic obsolescence, due to these factors can be measured by
comparing the sale prices of similar properties in a neighborhood area
that does not have the detriment to a neighborhood area that has one or
more of these types of undesirable features.

2\. [Economic/Financial Factors]{.underline}. The neighborhood\'s
location in relation to available long term financing for the property
has an influence on values. This change in property value can be
measured if a change in the amount of available financing in a certain
area causes a change in property sale prices. A decline in availability
of financing may be indicated by a lengthening of time required for
properties to sell, thereby increasing the number of properties on the
market at any one time. This increase in supply may result in sellers
being willing to sell at lower prices. The amount of decline in price
due to this factor is the amount of economic obsolescence due to
financing. It is also possible to measure the effect on value due to
lack of available financing by comparing sales in areas where a
noticeable difference is observed in availability of financing.

RD Instruction 1922-C

Exhibit A

Page 5

This should not be confused with the estimate of difference in property
values due to difference in interest rates charged on long term loans,
cost of obtaining long term loans, or loan to value ratios even though
they are closely related to availability of financing. Accounting for
these differences is discussed in the market data adjustment section of
this manual.

An excess or shortage of available building sites or properties offered
for sale and vacant homes, also influences property values. Observations
made during the neighborhood analysis of these factors should be
recorded are considered in the appraisal.

When unemployment rates in an area are high, property values in all
neighborhoods may be affected. The appraiser should stay abreast of the
local and national trends by reading publications which analyze changing
economic conditions. The appraiser can evaluate the strength of the
local economy through economic base analysis when one dominant industry
forms that base for all economic growth in the area. Changes in an
industry that is providing the major number of job opportunities and
setting the wage rates in a community affects the purchasing power of
the potential buyers of homes. This is most evident when a major
industry closes down and the local population is forced into traveling
an undesirably long distance to find employment. Almost immediately the
housing market may become depressed and a decline in residential
property values observed.

Regional planning commissions and other State and federal Agencies
publish data on local, regional, and National trends. Data from these
sources may enable the appraiser to document the strength or weakness of
the local economy. Sequential analysis may also be used for real estate
markets to identify trends in real estate values.

Consideration should be given to the opinions of informed people who are
familiar with real estate values in the area, such as; real estate
brokers, builders, private and cooperative lenders, and business leaders
to determine the likelihood that there will be a demand for housing in
the area in the foreseeable future.

3\. [Political/Governmental]{.underline} - Public Services available in
the neighborhood affect property values. Site values are enhanced when
adequate public services, such as; water, sewer, and natural gas are
available at a reasonable cost when compared to sites without these
services. However, property values may be affected adversely when high
taxes, assessment charges, and utility rates are imposed as compared to
a neighborhood with lower public service costs.

(3-31-89) SPECIAL PN

RD Instruction 1922-C

Exhibit A

Page 6

Zoning by local governmental bodies may protect property owners from
changes in land use that would cause a decline in value of existing
properties. When a residential neighborhood declines due to lack of
maintenance of older homes and the governmental body decides to change
the zoning from single family residential to multifamily or commercial,
property values may change. The appraiser must stay abreast of any
proposed zoning changes that would affect property values in a
neighborhood.

C. [Basic Neighborhood Description]{.underline}.

An appraisal will better identify and support the appraiser\'s reasoning
and judgment in the final value estimate when maps are included in the
appraisal report showing location of the subject and comparable
properties in relation to each other and to desirable and undesirable
features in the area. County and/or city maps are available in most
areas. Each comparable and the subject property locations are to be
designated on the map.

Part IV. [Site and Site Improvement Analysis]{.underline}.

A. Highest and Best Use of the Site.

Highest and best use is the most reasonable and most probable use that
will support the highest present market value of a site \"as is\" on the
date the site is appraised.

1\. [Vacant building sites]{.underline}.

A vacant site located in an area zoned only for residential single
family dwellings would dictate the site\'s highest and best use as a
residential site until the zoning and/or market conditions trended to an
alternate use, such as multifamily, commercial, etc.

A vacant site within an established neighborhood of single family
dwellings may dictate that the highest and best use of the site is for a
single family dwelling, even if zoning did not exist in the community.
However, if the neighborhood was made up of older houses that were not
properly maintained, the area may be in an irreversible decline and be
in the process of giving way to commercial or multifamily housing as the
highest and best use of a vacant site. In an area of scattered single
family houses or with a mixture of single family houses, multifamily
housing, commercial properties, and no zoning, the appraiser would have
to make a determination as to which purpose the vacant site could best
be used and, if in fact there was a demand for that use in the area. For
example, the appraiser determines the site is suitable for a fast food
store, but the area is already saturated

RD Instruction 1922-C

Exhibit A

Page 7

with that type of business and there is a shortage of sites for single
family houses in the area, he or she may decide the highest and best use
to be for a single family dwelling. All alternate uses must be
considered before the appraiser could support his or her final opinion
as the highest and best use of the vacant site in this example.

2\. [Developed Site]{.underline}.

The highest and best use of a developed site is usually dictated by its
present use. However, when the structure or development on the site has
deteriorated to the point that it can no longer be used for its original
purpose or there is no longer a demand for that type of development in
the community and an alternate use of the site would increase the
property\'s \"as is\" present market value, the highest and best use of
the site [would change]{.underline}. For example: When the site contains
a structure or development and the existing use will continue, the
highest and best use would be the same as existed when the appraisal is
made [unless]{.underline} the land value in an alternate use would
exceed the present market value of the site [and]{.underline} the
existing structure or development.

3\. [Deciding on highest and best use]{.underline}.

When appraising a site, whether developed or undeveloped, for single
family housing loan making purposes, the appraiser will estimate the
value of the site no higher than its value as a single family
residential site. If the site is determined not suitable as a
residential site, no appraisal for loan making purposes will be made. If
an RH acquired property site or property to be taken into inventory is
determined to have an alternate use that would cause its value to be
greater in the alternate use than as a residential site, including any
existing improvements, the appraiser will select the highest and best
use that will result in the highest inventory property value to the
Government. Care should be taken to be sure the alternate use would nor
adversely affect neighboring residential properties or conflict with any
zoning or use restrictions.

When an RH inventory property is classified as \"non program\" due to
the site being in a flood plain and flood insurance not available,
adequate safe potable water supply or sewage disposal system cannot be
obtained, etc., the appraiser must determine an alternate use for the
site and estimate the site value based on the alternate use. The value
of the improvements to the site, in this case, may only have salvage
value.

(3-31-89) SPECIAL PN

RD Instruction 1922-C

Exhibit A

Page 8

If an inventory property is classified as \"non program\" in accordance
with §1955.103(s), Subpart C, Part 1955 of this chapter, but the site is
suitable, the site value estimate will normally be based on a highest
and best use as a residential site. The value of the improvements to the
site, in this case, must be depreciated to reflect the cost a purchaser
would have to incur in order to have the deed restrictions removed and
the property made suitable as a residence. Only in extreme cases (where
it is not economically feasible or impossible to have the deed
restrictions removed) would the improvements to the site be appraised
for salvage value.

B. [Site description]{.underline}.

All appraisal reports must contain a legal description of the subject
property. A survey plat should be attached when available. A copy of all
deed restrictions, easements, and zoning requirements should be
attached. The appraiser will current on the topography of the land,
shape, effective area, and any excess area that would affect the site
value. For example: In order to make a steep lot suitable for
residential purposes, extra grading may be required which would cause
the \"as is\" value of the lot to be less than a level lot in the same
subdivision. Any desirable or undesirable views from the site will also
be described in the appraisal.

C. [Exterior Inspection of Improvements to the Site]{.underline}.

In addition to a photograph of any improvements to the site, the
appraiser will describe such things as style of house, quality of
construction, measurements of the dwelling, and the date or the
inspection in the appraisal report. A complete list of improvements to
be made to the exterior of the structure including roof, siding, window
and door, attic ventilation, crawl space, floor joist, and floor
insulation should be made during the inspection visit to the property.
When appraising a property to be built, only an inspection of the site
can be accomplished and decisions concerning the improvements must be
made from plans and specifications submitted by the contractor or
applicant. However, the appraiser must note the condition and
suitability of the site during this visit and any improvements to the
site that are not included in the plans and specifications.

D. [Interior Inspection of Existing Improvements to the
Site]{.underline}.

When making an appraisal as a result of an application to repair an
existing dwelling, the appraiser should require a complete description
of the planned repairs and cost estimate prior to inspecting the
property. During the inspection the appraiser will list any additional
repairs to be required and any items that are

RD Instruction 1922-C

Exhibit A

Page 9

considered above modest or not necessary and immediately advise the
applicant.

When inspecting any existing property the appraiser will make notes of
the conditions observed and estimate effective age. The following parts
of the interior of the dwelling as a minimum, should be examined:

1\. Ceiling and wall finishing materials

2\. Floor covering

3\. Suitability of room layout

4\. Bathroom fixtures and number of fixtures

5\. Heating and cooling systems

6\. Utility room

7\. Electrical system, lighting fixtures, electrical appliances

and ampere rating of entrance panel

8\. Plumbing

9\. Attic insulation

10\. Roofing, bracing, condition of rafters, and decking

11\. Stairways

12\. Closet size and placement

13\. Energy efficient items

14\. Special interior features

15\. Kitchen cabinets and counter space

16\. Basement

During the inspection the appraiser will note any damage from rats,
termites, etc., and in cases of older or severely deteriorated
dwellings, or functionally obsolete dwellings, whether or not the
property is suitable for program financing due to inability to bring the
dwelling up to minimum property requirements and standards desired by
the typical purchaser in the area.

Part V. [Sales Comparison Approach to Value]{.underline}.

After the appraiser has collected and analyzed data described in the
preceding four parts to this manual, the next step is to collect and
analyze data on sales of properties that have improvements similar to
the subject property.

This is the most heavily relied on evaluation method in single family
residential appraisals. Cost does not always create value. Value is less
than cost when similar properties are selling for a price below the
replacement cost. This is observed in a severely depressed market and
when a dwelling design does not meet the standards set by the typical
home buyers in the market area. An economically distressed area may
result from high unemployment, high cost of obtaining long-term loans,
high interest rates, a low purchasing power of potential purchasers due
to low wages or high

(3-31-89) SPECIAL PN

RD Instruction 1922-C

Exhibit A

Page 10

taxes and assessments, and high utility costs. Cost of excessively
elaborate items not generally needed or required by typical purchasers,
or lack of desirable features of a particular design may also result in
cost exceeding value; poor financial management or poor quality design
and workmanship by a developer/builder may also result in a cost greater
than value.

These are only a few of the reasons that the sales comparison market
data) analysis method of estimating value of residential properties is
considered the most reliable approach in the final value estimate.

A. Three principles form the basis for sales comparison market data)
analysis. They are:

1\. The principle of anticipation, which affirms that a purchaser
desires to receive future benefits from owning a property; such as,
pride of ownership, satisfaction with design and other amenities,
appreciation in value of the property rights not afforded a tenant,
etc., that warrant paying a certain price for the property, i.e.,
present worth of all future benefits.

2\. The principle of substitution, which assumes that a prudent
purchaser would pay no more for a property than the cost of acquiring an
equally suitable property; i.e., utility value of a property is equal to
utility value of another property when the purchaser would be equally
satisfied with either property.

3\. The principle of contribution, which asserts that the value of a
component part or quantity and quality of a component part of a property
depends on how much it contributes to the overall value of the property,
i.e., how much its absence would detract from the overall property
value.

B. Collecting and verifying data on residential property sales.

The indicated value of a particular property is set when the purchaser
and seller agree on a specific price. This \"meeting of the minds\"
becomes a \"comparable sale\" only when the appraiser can verify that it
has occurred. It is better to use data only from properties that have
sold and the deed recorded. The listing price of a property for sale can
never be used as a comparable.

1\. Sources of sales data may vary from one location to another. One or
more of the following sources are usually available:

a\. County and/or city tax assessment offices

b\. Tax appraisers

c\. Designated attorneys

RD Instruction 1922-C

Exhibit A

Page 11

(Revision 1)

d\. Public deed records

e\. Real estate firms

f\. Rural Development borrowers who sell with financing\
from another lender

g\. Other lenders

2\. The appraiser will complete Form RD 1922-12, \"Nonfarm Tract
Comparable Sales Data,\" on sales of properties that are similar in size
and design to those eligible for financing through the Section 502
program. The Forms RD 1922-12 may be grouped according to dwelling size,
county, town, and neighborhood. The source of the verification of the
data will be recorded on the card. Sales data on sites will also be
collected by completing the top half of Form RD 1922-12, and documenting
the sales price and source of information in the comments section of the
card. Form RD 1922-12 applies only to Rural Development staff
appraisals. (Revised 01-27-93, PN 199.)

3\. [Inspecting the comparable sale]{.underline}. The appraiser is
required to make a complete personal visual inspection of all comparable
properties used in the appraisal report. If feasible, an interior
inspection of the property should be made, but is not required. A
photograph of each property will be attached to the Uniform Residential
Appraisal Report, also known as Form RD 1922-8, and identified by
address, price, and date of sale. (Revised 01-27-93, PN 199.)

4\. [Selecting comparable sales]{.underline}. After the appraiser has
collected sufficient data on the neighborhood and subject property, the
appraiser can select comparable sales data to be used in completing the
sales comparison analysis of Form RD 1922-8. The less absolute dollar
adjustments (ignoring + and - signs) required to a comparable, the more
similarities it has to the subject property; therefore, the more
reliable the indicated value in the sales comparison (market data)
analysis and the greater the reliance on that comparable in estimating
the market indicated value. To avoid large adjustments for location,
comparable sales closest to the subject property should be used. The
more recent the comparable sales data, the less the amount of adjustment
for time and the more reliable the data.

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RD Instruction 1922-C

Exhibit A

Page 12

(Revision 1)

5\. Adjustments to comparables in the sales comparison (market data)
analysis. If a property next to the subject property had just sold with
similar financing and was identical to the subject property, no dollar
adjustment would be needed. This seldom happens and dollar adjustments
are almost always required. Adjustments will be made and documented when
the comparable differs from the subject property in any one of the
following factors or features:

a\. Sales or financing concessions

b\. Date of sale/time

c\. Location

d\. Site view

e\. Design and appeal

f\. Quality of Construction

g\. Age/condition

h\. Above grade room count - gross living area (size)

i\. Basement and finished rooms below grade

j\. Functional utility

k\. Heating/cooling

1\. Garage/carport

m\. Porches, patios, pools, etc.

n\. Special energy efficient items

o\. Fireplaces

p\. Other

Adjustments to the comparables are made to estimate what the sales price
of the comparable would have been if that property was identical to the
subject property in all these areas.

6\. [Basis for estimating dollar adjustments]{.underline}. The paired
sales extraction method of estimating the value a particular feature or
factor contributed to a properties sale price should be used when
possible. When the number of comparable sales is limited in the market
area, the appraiser may be unable to complete a matched pair extraction
for value differences. In such cases, cost data for items such as area,
air conditioning, storage, fireplace, etc., may be used. Survey results
may be used to estimate value differences for features such as location,
site/view, design and appeal, etc., because of the appraiser\'s
inability to objectively measure value of these type features. In all
cases where cost or survey data is used, the data has a higher degree of
subjectivity and therefore is less reliable than value indicated by the

RD Instruction 1922-C

Exhibit A

Page 13

matched pair concept. Example of value indicated by matched pair concept
are as follows:

Two properties almost identical and in similar locations except one had
an attached garage and the other had only a driveway for parking; by
comparing the sales prices of each property, the difference in sales
price would be attributable to the garage. This value difference could
be used in adjusting other comparable sales to the subject property. The
more paired sales extractions the appraiser can make for garages-vs-no
garages (or for any other differences), the greater the reliability of
the data in estimating value contributed by a garage (or other feature
or factor).

When two properties have several major differences, a matched paired
extraction may not be feasible or reliable. When only two or three major
differences are observed and data from other paired sales extractions is
available to adjust for all but one remaining difference, value
extraction would be possible for the remaining item but the value
extracted would be less valid than data extracted from two properties
that had only one major difference.

When a systematic comparison cannot be made based on paired sales
extraction, the appraiser may use depreciated replacement cost
calculation and sound judgment to estimate the value difference caused
by a particular feature. However, since cost does not always create a
value equal to cost, this method of adjusting comparables to the subject
should be avoided whenever possible. When a cost estimate is used, the
appraiser must document the reasons he/she was unable to use a value
estimate based on a paired sales extraction. When a matched pair
extraction cannot be made, the value differences caused by features in
the comparable property which differ from the subject property require
judgment and experience in order to make adjustments. The appraiser will
recognize any significant favorable or unfavorable factors and reflect
them in the recommended market value.

a\. [Sales or Financing Concessions]{.underline}.

This section is to be used to describe any adjustment in the sale price
attributed to differences in financing.

Dollar adjustments for these differences will be made by paired sales
extraction, cost estimate, or the survey method of value contribution by
the specific feature being compared. An adjustment for value difference
attributed to more or less favorable financing rates, terms, and cost of

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RD Instruction 1922-C

Exhibit A

Page 14

financing in a comparable sale may be calculated, however, this
calculation is less desirable than the paired sales extraction method.

When using data from a comparable sale which was financed with more or
less favorable terms than typical in the market area, an adjustment must
be made to account for the distortion (if any) in sales price due to
financing. The following example outlines the steps necessary to
estimate the dollar amount of adjustment necessary to correct for this
distortion in sales price using the calculation method:

STEP 1 - Establish the \"normal\" rates and terms of typical
conventional financing in the market area as of the date of the
appraisal.

STEP 2 - Compare the rates and terms of the financing on the comparable
sale being used to the normal rates and terms available in the market
area. If there is no difference, there is no adjustment needed for
financing; if the rates and/or terms are different, go to STEP 3.

STEP 3 - Establish the mortgage constant for both normal rates and terms
and the comparable with rates and terms different from the normal. The
mortgage constant is the annual principal and interest payment due the
loan, expressed as a percent of the original loan amount. This
percentage is easily determined by multiplying the monthly amortization
factor by 12. Example: Assume the typical rates and terms are 13.5
percent for 30 years. The 30-year monthly factor @ 13.5 percent is
.001146. .001146 x 12 = .1375 mortgage constant, i.e., the total annual
principal and interest payment on the loan is 13.75 percent of the
original loan amount.

If a comparable property was financed for 30 years at 10 percent, its
mortgage constant would be .00878 (Amortization Factor) x 12 = .1054
mortgage constant.

Therefore, .1054 ö .1375 = .767 or 76.7 percent. 76.7 percent x amount
of loan on comparable with below market financing, equals sale price for
nontypical interest rates.

RD Instruction 1922-C

Exhibit A

Page 15

Assume the comparable sold for \$40,000 and had an 80 percent loan to
value ratio (\$32,000 loan) \$32,000 x .767 = \$24,544 (say \$24,500).

\$24,500 + \$8,000 (original equity) = \$32,500

\$40,000 - \$32,500 equals a \$7,500 negative adjustment to be used for
the comparable with below market interest rate. This accounts for the
distortion in sale price due to the below market interest rate.

Additional adjustments may be necessary if other financing differences
are observed, such as loan origination fees and discount points, which
have caused a distortion in the sale price of a comparable property.

The appraiser should, if at all possible, avoid using comparable sales
that have financing using balloon payments, flexible interest rates,
negative amortization (due to a small payment during the first few years
the unpaid principal increase due to excess interest accumulation),
short term seller financing on a portion of the equity, etc. Due to the
complexity of these types of financing, the true cost to the purchaser
is difficult to identify and therefore cannot be accurately estimated or
supported in an adjustment to the comparable sale price in the appraisal
except by the matched pair extraction method.

b\. [Date of Sale/Time]{.underline}.

The appraiser must determine the annual percent change in price of
residential properties (increase or decrease) based on data published by
Federal, State, and local agencies and real estate sale firms. Another
more reliable method to analyze real estate market trends is by the use
of a sequential analysis of sales that have occurred in the local market
area. Sequential analysis is accomplished by collecting data on sales
that have occurred in a specific time period and comparing the sale
prices on a price per square foot basis. Refer to Exhibit A-1 of Subpart
C of RD Instruction 1922, for a detailed example and calculation sheet
format.

c\. [Location]{.underline}

Location has a significant influence on the value of a residential
property. The difference in value of a property

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RD Instruction 1922-C

Exhibit A

Page 16

in one location when compared with an identical property in another
location is the amount of depreciation due to economic obsolescence. The
location of the property with respect to community services, such as
transportation, places of worship, recreation, employment, shopping
facilities, schools, and roads are important considerations in making
appraisals. The value is closely associated with the availability of
adequate income and employment opportunities. Locations on good roads
within reasonable distance from well-established employment
opportunities have a distinct advantage over properties that are
remotely located with respect to employment opportunities, essential
services, and general accessibility.

Locational considerations include:

\(1\) New modern homes that are adequate but modest in size, design, and
cost, located in a growing progressive community may have market value
equal to the current construction cost of similar homes in the area plus
the value of the land. The term \"growing progressive community\" means
a rural town or densely populated rural area where employment
opportunities are available on a permanent basis to assure that a ready
market likely would exist for the type of homes being constructed.

\(2\) The market value of new modern homes that are adequate but modest
in size, design, and cost, located in small towns or other densely
populated rural areas [of a static or declining population or limited
employment opportunity]{.underline} will usually range bellow average
cost or constructing a home, plus the value of the land. The term
\"static or declining area\" refers to a community, small town, or area
of a city or town where employment opportunities are very limited or are
declining. This is an area in which growth has been arrested or the rate
of growth may be declining.

\(3\) Factors outlined in §1922.104(a)(1) of this subpart.

\(4\) New modern homes located in open country will vary widely in
market value in relation to the cost of the dwelling plus the value of
the land. This is associated primarily with the desirability of the
property from the standpoint of location, accessibility, utilities,
community facilities, and the

RD Instruction 1922-C

Exhibit A

Page 17

(Revision 1)

aesthetic appeal of the property. When some of these elements are absent
or unfavorable, value likely would be influenced adversely because of
the limited number of persons willing to purchase such property when
compared to the number who probably wold be interested in a similar
property located in an area where essential services and facilities are
more readily accessible.

d\. [Site/Site View]{.underline}.

Value difference may result due to lot size, shape, topography, and the
view from the site; is it surrounded by older homes, overlooking a nice
wooded area with a stream, next door to a service station on a heavily
traveled street, located next to railroad, etc. The appraiser may be
unable to determine value differences by the matched pair concept
because of limited numbers of actual sales, and therefore, may have to
rely on survey data. Again, data collected from a survey would have a
greater degree of subjectivity than data extracted from matched-paired
sales; however, would be much less subjective and more supportable than
a \"mental\" estimate based solely on the appraiser\'s opinion from past
experience. The survey results should always be tempered by good
judgment and supported by the appraiser\'s past experiences and
training. The greater the experience and training of an appraiser, the
more defendable the final value estimate, just as the greater the number
of matched pair value extractions for a certain factor or feature or the
larger number of families in a sample, the greater the reliability of
the estimate. The appraiser must also make adjustments if the subject
site has objectionable factors such as the lot being in a flood plain,
seismic or mudslide area, and/or objectionable soil characteristics such
as high shrink/swell potential if the comparable site did not have one
or more of these objectionable features.

e\. [Design and Appeal]{.underline}.

Many different designs of homes exist in the Nation. A certain locality
will likely have a predominate style and design of home such as ranch,
split foyer, western pueblo, temperate zone concrete house, flat roof,
two story, etc.

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RD Instruction 1922-C

Exhibit A

Page 18

(Revision 1)

When appraising a home with design different than the more prevalent
design for the area, or using a comparable sale that is of a different
design and style as the subject property, a value difference may exist.
To measure the difference in value caused only by this factor the
appraiser would use the paired sales extraction method when possible or
the survey method to support the reasoning for any estimate of
difference of value due to style and design.

f\. [Quality of Construction]{.underline}.

Soundness of construction must be considered since it determines the
amount of maintenance due to normal wear and tear and exposure to
environmental elements and may affect the economic life of the dwelling.
A house of quality construction reflects more value than one of
substandard material and workmanship. The primary method that should be
used to estimate value differences in different quality homes is by
market extraction. This compares two homes which are similar in all
features except quality, that have sold; the difference in sale prices
would be value difference due to quality. Cost information from
nationally distributed cost calculation publications, such as the
Marshall and Swift Residential Cost Handbook, may also be used to
estimate the difference in cost of different qualities of houses when
estimating value differences.

Since poor quality workmanship may cost the same as good quality
workmanship, the cost approach to estimating value differences should be
avoided when possible. However, when adequate documentation is provided
to support the value difference estimate and the inability to use the
paired sales extraction method, the cost calculating handbook quality
comparison method may be used.

g\. [Age and Condition]{.underline}. (Revised 01-27-93, PN 199.)

During the inspection visit to an existing property, the appraiser must
document the effective age of the structure and each of its major
components as outlined in Part IV, C and D of this exhibit.

RD Instruction 1922-C

Exhibit A

Page 19

(Revision 2)

When adjusting comparables to the subject, any differences in age or
condition in the two properties will be accounted for in positive or
negative dollar adjustments to the comparable. This will account for
physical depreciation in both the subject property and the comparable
property in the Sales Comparison analysis.

When the subject property is to be repaired prior to or immediately
after an appraisal is made, a repair list and cost estimates are to be
obtained prior to making the appraisal. No physical depreciation would
exist for the items replaced or repaired to new condition.

Typical conditions requiring repairs or replacement are: termite damage;
damaged, inoperative or inadequate plumbing; heating or electrical
systems; broken or missing fixtures; rotten or worn out counter tops or
finished floors; any structural failure in framing members; leaking or
worn out roofs; exterior paint peeled to the bare wood; masonry and
foundation damage; drainage problems; wood floors worn through the
finish; broken plaster or sheetrock, failure to meet requirements of
local codes and minimum property standards, and any element which, while
still operable or useful, will have reached the end of its useful life
within a period estimated not to exceed five years, should also be
replaced. With respect to such deferred maintenance items, good judgment
must be exercised.

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RD Instruction 1922-C

Exhibit A

Page 20

(Revision 2)

h\. [Above Grade Room Count - Gross Living Area (Size)]{.underline}.

Comparable properties usually vary in size of living area from the
subject property. The appraiser should select comparables as similar in
size and room count to the subject property in order to avoid large
adjustment for size differences. For RHCDS purposes, above grade room
count means overall room count and corresponding gross living area
(size). (Revised 10-27-95, SPECIAL PN.)

The following method must be used to adjust for size differences:

\(1\) Subtract the site value from the sales price of the comparable.
When the comparable has a garage, carport, or basement, subtract the
estimated value of those features.

\(2\) Divide the remaining amount in item (1) by the total square feet
of living area in the comparable to obtain sale price per square foot of
living area.

\(3\) Subtract the total square feet of living area in the comparable
from the total square feet of living area in the subject. When the
comparable dwelling has more living area than the subject, the answer
will be negative (-).

\(4\) Multiply the square foot difference by the price per square foot
obtained from the calculations in item (2). The answer will be the
amount of dollar adjustment to make to the comparable to compensate for
the amount of sale price contributed to the difference in size. When the
size difference is a negative amount, the adjustment to the comparable
will be a negative adjustment. Adjustments for value differences caused
by site, garage, and/or carport differences will be made later.

The following examples illustrate this method of estimating value
differences due to size of living area:

RD Instruction 1922-C

Exhibit A

Page 21

Assume comparable A sold for \$40,000 and had a single car garage valued
at \$3,000 and a site value of \$8,000. The dwelling contained 1200
square feet of living area.

Assume the subject property has 1100 square feet of living area. The
following calculations are made:

\$40,000 - 3,000 - 8,000 = \$29,000

\$29,000 ö 1200 = \$24.17 per square foot of living area.

1100 - 1200 = -100 square feet difference

-100 x \$24.17 = -\$2,417 adjustment to the comparable for size
difference (rounded equals a minus \$2,400 adjustment)

Comparable B sells for \$49,000, had a site value of \$5,000, a double
car garage valued at \$4,000, and a basement valued at \$10,000. The
dwelling had 1000 square feet of living area.

Assume the subject has 1100 square feet of living area. The following
calculations are made:

\$49,000 - 5,000 - 4,000 - 10,000 = \$30,000

\$30,000 ö 1000 = \$30.00 per square foot of living area

1100 - 1000 = +100

+100 x \$30.00 = +\$3,000 adjustment to the comparable for size
difference.

i\. [Basement and Basement Finished Rooms]{.underline}.

A basement is the lowest story of a dwelling, partially or totally below
ground level; not a cellar. A basement may contain finished rooms
suitable as living area, whereas a cellar is not suitable for living
area. The lower level of a Split Level dwelling, which contains a
partial basement (rear wall/below grade) and finished room area adjacent
to the partially exposed front wall of the lower level, is not
considered a full basement. The finished area contained

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RD Instruction 1922-C

Exhibit A

Page 22

therein for Rural Development purposes, will be included in the above
grade room count/gross living area computations on Form RD 1922-8.

Basements may vary widely in ceiling height, usable space, ventilation,
access to natural light, type of wall and floor surfaces, and access to
the upper level of the dwellings and to the outside. As a result, two
dwellings with the same number of square feet of basement area may have
significantly different values contributed by the basement. A basement
with low ceilings or other unacceptable features may cost more to
construct than the value it contributes to the total property. Finished
rooms in a basement with poor quality material and finish work may
actually cause the basement to contribute less value to the property
than if it contained no finished rooms.

The basic principle of extractions from matched-pair sales applies to
estimating the value contributed by a basement and basement finished
rooms. Only when a matched-pair extraction cannot be made will be
appraiser use replacement cost calculations to estimate the value
contributed by a basement and basement finished rooms. The appraiser
must make adjustments to the replacement cost estimate for any
undesirable features observed such as low ceilings, unacceptable floor
and or wall surfaces, poorly constructed finished rooms, moisture
problems, poor entrance stairs, or lack of entrance from the main floor
of the dwelling, etc.

Finished rooms in a basement usually do not cost as much as finished
rooms on the main level of a dwelling. Therefore, the appraiser must be
careful to not include basement finished rooms in the total finished
area of the above ground floors in the dwelling.

j\. [Functional Utility]{.underline}.

Any design or feature of a dwelling that is not acceptable to the
typical buyer in the market area will be identified by the appraiser on
the inspection visit to an existing dwelling or in the review of the
plans and specifications of a dwelling to be built. All items affecting
the livability and marketability of the property will be recorded in the
appraisal report. The appraiser will measure the value difference caused
by functional obsolescence, by comparing properties that have sold that
meet the demands of the typical purchaser to comparable properties that
have sold that had similar items that did

RD Instruction 1922-C

Exhibit A

Page 23

not meet the livability and marketability demands of the typical
purchaser. The appraiser must be familiar with the taste and desires of
the typical purchaser in the market area in order to support the
estimate of value loss due to functional obsolescence of a property. The
appraiser\'s estimate of amount of functional obsolescence caused by
features not meeting the standards in market area should always be
tempered by good judgment based on the appraiser\'s past experience,
common sense, training, and knowledge of the market area.

Home buyers demand certain features in a property, and these demands set
the standard for a particular feature. A dwelling that is missing one or
more standard features will be worth less than a dwelling that contains
all the features that meet the desirability standards set by home
buyers. An over-improvement in a property that causes its cost to exceed
what the typical purchaser can afford or is willing to pay for also
contributes to functional obsolescence. This may result in a depreciated
replacement cost less that reproduction cost new of existing dwellings
and less than construction cost of a new dwelling. When estimating
functional obsolescence due to non-standard design and appeal of a
dwelling, the appraiser must consider:

\(1\) [Special Design Dwellings]{.underline}. Dwellings designed to meet
special needs of a borrower and for which there likely would be few
buyers if they were offered for sale, would have a market value
substantially less than the cost. Also, dwellings that because of
unusual design or construction are not generally accepted in the
community likely would have limited resale value.

\(2\) [Large and Expensive Dwellings]{.underline}. Dwellings that are
larger or more costly than adequate modest dwellings in the area likely
will not have a market value significantly greater than the market value
of modest but adequate dwellings in the area unless the typical
purchaser could afford them. For this reason, probable future demand for
the larger or more costly dwelling is not likely to exceed other
dwellings available in the less costly price range.

\(3\) [Older Homes]{.underline}. Market standards change over time as
the taste of the typical buyer changes. Older homes that were built to
suit the taste of the typical home buyer years ago may not meet the
current standards set by today\'s home buyers. Features such as height
of ceiling, room size, cost of heating and cooling, cost of

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RD Instruction 1922-C

Exhibit A

Page 24

maintenance, etc., may result in functional obsolescence. Such features
should be carefully examined by the appraiser and reflected in the
accrued depreciation estimate.

\(4\) [Property Features]{.underline}. Property features less acceptable
to the typical purchaser as a result of undesirable features or lack of
desirable features will be considered in estimating any decrease in
value in the property. Features such as, but not limited to, the
following will be examined for both existing properties and dwellings to
be constructed when estimating functional obsolescence:

\(a\) Room arrangement that does not provide for convenient access,
circulation, and privacy within the dwelling.

\(b\) Kitchen cabinets and counter space that does not provide for
efficient food preparation, serving, and storage.

\(c\) Room sizes not sufficient to accommodate typical furnishings and
allow for intended use and circulation.

\(d\) Window and door size and placement which does not provide for
adequate natural light and ventilation and ease of access and movement
of furnishings.

\(e\) Bathrooms that do not allow for access to, and use of, each
fixture, or placement that restricts convenient access to the facility.

\(f\) Closets and general storage inadequate to provide storage of
clothes, coats, linens, household supplies, and maintenance tools
normally associated with the desires of the typical purchasers.

\(g\) Site design including landscaping, driveways, walks, retaining
walls, and relationship to site surroundings not considered desirable to
the typical purchaser.

\(h\) It is important to examine closely those basic exterior features
which are fundamental to making a home attractive, livable, comfortable,
and adequate. Condition and type of roof, siding, windows, doors, and
foundation should be carefully examined.

RD Instruction 1922-C

Exhibit A

Page 25

k\. Heating/Cooling.

Homes to be built that will have a properly sized central air
conditioning system installed during construction may have a value
increase equal to or greater than the cost of installation. Existing
dwellings without air conditioning may not increase in value equal to
the retrofit installation cost of an air conditioning system when the
cost exceeds the installation cost of an identical system in a dwelling
being built.

The actual increase in the value of a property attributed to air
conditioning or decrease in value due to lack of air conditioning can be
measured only by sales comparison analysis (market data extraction).
Whoever, estimates based on the survey method and cost calculation
method are acceptable when the appraiser adequately documents the lack
of adequate comparable sales necessary to obtain a matched-pair
extraction.

A very small increase in value is usually observed in dwellings with
individual window unit air conditioners. Window unit air conditioners
usually do not have as long an economic life as a central system. For
Rural Development appraisals, no value will be placed on wall mount or
window mount air conditioners.

Value differences between the subject property and comparables
attributed to heating systems must be reflected in the appraisal
process; eg., heat pumps versus electrical baseboard heat. The value
differences will be measured in the same manner as air conditioning
systems.

1\. [Garages/Carports and Outside Storage]{.underline}. Attached or
detached garages, carports or basement garages influence the value of
residential property. This value contribution should be estimated by the
sales comparison analysis (market data extraction) method. When adequate
market data is not available, the depreciated replacement cost
calculation method may be used.

Parking facilities such as an uncovered parking pad will not be included
in the garage/carport adjustment section of the sale comparison analysis
section, on Form RD 1922-8. (Refer to \"other\" section).

In addition to adequate living area, home buyers normally require
adequate enclosed space for exterior

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RD Instruction 1922-C

Exhibit A

Page 26

storage of lawn maintenance equipment, etc. When this type of storage
space is built into an attached carport or attached garage, adequate
space is usually included for clothes washer/dryer machines. Since
storage is essential for most homeowners, a dwelling without adequate
suitable storage facilities will likely have a value less than a
dwelling with adequate suitable storage space.

The basis for estimating value differences due to storage is by market
data extraction or construction cost estimate. When an extraction cannot
be made from available market data, the construction cost estimate of
exterior storage will be considered an acceptable estimate of value of
exterior storage because, in most situations, the cost of providing
exterior storage is similar to the cost in a dwelling being built.

m\. [Porches-Patios-Pool, etc]{.underline}.

Appropriate adjustments for these features should be based upon local
market conditions.

n\. [Special Energy Efficient Items]{.underline}.

All dwellings financed by Rural Development are required to meet the
thermal standards contained in Exhibit D of RD Instruction 1924-A. When
comparable properties are used that do not meet Rural Development
thermal standards, adjustment to the sales price may be necessary in
order to account for the value difference due to lack of energy
efficient items.

\(1\) Lack of energy efficient items. Existing dwellings with
inefficient heating systems and/or without perimeter wall insulation,
larger than normal room sizes and high ceilings are much more difficult
to heat and cool than the typical new dwelling that meets all Rural
Development thermal standards. The increased utility cost to the typical
purchaser normally results in less incentive to purchase the inefficient
home. This usually results in the sales prices of these homes being
significantly less than homes with lower utility costs. The market data
extraction from paired sales is the most desirable method of estimating
value differences between energy efficient homes and homes that are not.
The value difference is usually greater than the cost of installation in
a new home since it is not usually economically feasible to lower
ceilings, replace inefficient but functional heating systems, or install
insulation in existing walls.

RD Instruction 1922-C

Exhibit A

Page 27

(Revision 1)

Another method of estimating value difference due to excessive cost of
heating and cooling an existing home is by the comparative energy audit
method. This method requires an energy audit by a utility company be
performed on both an energy efficient dwelling and the dwelling being
appraised that is not energy efficient. The results of this cost
comparison will be the excess monthly utility cost of the inefficient
dwelling over the energy efficient dwelling. The difference divided by
the amortization factor for \$1.00 at the interest rate being charged on
Rural Development loans at the time of the appraisal. (Rural Development
amortization tables are for \$1,000 amortization factor.) The result of
this division is the amount of loan funds (therefore purchase price)
that could be repaid from the amount of excess utility cost if it did
not exist. For example, assume a comparative energy audit indicated the
monthly heating/cooling cost of a non-energy efficient dwelling to be
\$50 higher per month and the Rural Development moderate income interest
rate in effect at the time of the appraisal was 12 percent and the loan
was to be for 33 years. The 12 percent monthly amortization factor for
33 years is 10.20 per \$1000 from the Rural Development amortization
tables.

10.20 - \$1,000 = .01020 per \$1.00

\$50.00 - .01020 = \$4,902.50

(rounded - \$4900)

This indicates the purchaser could pay \$4,900 more for an energy
efficient home and would have the same total monthly cost for loan
payments and utilities. Therefore, this indicates that dwellings that
are not energy efficient would be worth \$4,900 less than the energy
efficient dwelling due to lack of energy efficient items.

This example demonstrates one method of estimating value differences in
energy efficient versus non-energy efficient homes; however, actual
sales data extraction should form the basis for this estimate when
available.

\(2\) Excess energy efficient items. A point of diminishing return may
be reached when R values are increased beyond the point of providing a
savings in utility cost equal to the cost of the investment. For Rural
Development appraisal purposes energy efficient items in excess of Rural
Development thermal standards are not required to be considered in the
value estimate for a property being appraised. A separate calculation
may be made when an

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RD Instruction 1922-C

Exhibit A

Page 28

(Revision 1)

applicant specifically requests a significant amount of excess
insulation material or solar items be included in a dwelling to be built
or applies to purchase an existing dwelling with these features. This
calculation is called \"Value in Use.\" The Rural Development County
Office will request assistance from the State Office in determining the
appropriateness of the feature for Rural Development modest housing and
in making the calculation. Exhibit D, Subpart B, of Part 1922 outlines
the Value in Use method and must be followed in making this estimate.
(Revised 9-5-90, PN 144)

o\. [Fireplaces]{.underline}.

Adjustments should be made for any changes in value which are caused by
the existence or non-existence of a fireplace. All adjustments should be
market extracted.

p\. [Other]{.underline}.

Any differences in the comparables and subject property, such as the
sale price of the comparable included a trash compactor, disposal,
refrigerator, dishwasher, clothes wash and dryer, while the subject
property does not, will have to be accounted for in the Sales comparison
Analysis section, titled \"Other.\"

Common elements and assessments will also be addressed in this section.
When a subdivision or town house type development has a perpetually
maintained area of common property where all property owners have equal
rights to use of the common property, a favorable influence on property
values within the development may be observed. This value contribution
can be measured only by comparing sales of similar properties where
owners do not have rights to common properties to sales of properties in
a development where the property owners do have access to common
property.

The influence of assessments, whether annual or monthly, on property
values will be estimated by comparing sales of properties without
assessments to sales of similar properties with assessments. When all
properties in a market area are subject to a similar amount of
assessments no estimate need be made for this factor.

Interior storage facilities, such as kitchen cabinets, closet space, and
a utility room are usually required by home buyers. A dwelling without
adequate space to install interior storage may be worth substantially
less than a similar dwelling with adequate interior storage space. When
estimating the decrease in value of a dwelling due to lack

RD Instruction 1922-C

Exhibit A

Page 29

(Revision 1)

of interior storage space, the appraiser must use the market data
extraction method when possible. The cost to retrofit interior storage
is almost always greater than when the space is provided during the
initial construction of the dwelling. Construction cost to provide
adequate, suitable interior storage space may form the basis for this
estimate only when adequate market data is not available. When plans and
specifications for a dwelling to be built indicate less interior storage
space than is normally observed in dwellings, the appraiser must be
careful to consider the excess cost involved in providing this storage
space in the dwelling after the construction has been completed.

Any area of the dwelling 7 feet or more in height not included in
finished living area or basement area will be included in total storage
space. Crawl space without a finished floor and/or less than 7 feet in
height will not be included in storage area.

Adjustments for driveways and uncovered parking pads should be extracted
from local market data.

VI\. [Replacement Cost Approach]{.underline}.

Reproduction cost new less any adjustments required to reflect value
loss due to functional and economic obsolescence, and physical
deterioration equals depreciated replacement cost. The depreciated
replacement cost plus the value of the developed site equals property
value indicated by the cost approach. The depreciated replacement cost
estimate, therefore, takes into account any differences in market
standards for design, layout and other features that are observed in the
structure being appraised in addition to any value decrease due to
physical deterioration and location.

A. Four methods are used in estimating the reproduction cost of a
dwelling.

1\. [Quantity Survey Method]{.underline}. This requires an item-by-item
listing of individual parts and labor costs to assemble the complete
dwelling plus the typical builder\'s indirect cost.

(03-31-89) SPECIAL PN

RD Instruction 1922-C

Exhibit A

Page 30

(Revision 1)

This method requires not only a thorough knowledge of the construction
trade but requires an extensive amount of time to obtain price
quotations on each type and size of material that is to be used in the
construction plus estimates of wages to be paid laborers, builder\'s
profit and indirect cost, such as construction financing expenses. These
requirements limit the use of the quantity survey method in the
appraisal process.

2\. [Unit in Place Method]{.underline}. This method is less time
consuming than the quantity survey method because the appraiser groups
portions of the structure that are usually constructed by
subcontractors. For example, plumbing, wiring, kitchen cabinets, floor
covering, footing/foundation, framing, etc., are segments of a structure
that may be subcontracted.

The appraiser\'s cost estimate would be leased on the price each
subcontractor would charge for a particular segment of the structure.
Gathering this information from multiple subcontractors for a single
group of items is often difficult.

3\. [Trade Breakdown Method]{.underline}. The cost of installing each
major item is collected from subcontractors or published cost services.
This information may be obtained on a per unit basis such as square or
linear foot. For example, a local carpet installation company usually
would charge a certain rate per square yard or per square foot to
install carpet. The published cost services uses the trade breakdown
method in the segregated cost tables.

4\. [Comparative Unit Cost]{.underline}. This is a lumping together of
all cost of constructing the dwelling into a single cost per square foot
of living area, garage or carport area, basement area, porch area, etc.
This may be based on data obtained from local contract prices to build
dwellings similar in quality and design to the dwelling being appraised
or on published cost services and computerized cost services. This is
the preferred method and is used by most appraisers because of its
simplicity and because it offers an acceptable degree of accuracy. The
Marshall and Swift Publication Company Residential Cost Handbook is to
be used in calculating replacement cost of improvements to the site when
appraising proposed or existing properties under 1 year of age. The
handbook has instructions on how to use data to make cost calculations.
(Revised 01-27-93, PN 199.)

RD Instruction 1922-C

Exhibit A

Page 31

(Revision 2)

PART VII [Reconciliation and Estimated Market Value]{.underline}.\
(Renumbered 01-27-93, PN 199.)

Reconciliation is: The process by which the appraiser evaluates,
chooses, and selects from among two or more alternate conclusions or
indications to reach a single answer (estimated market value).

The appraiser weighs the relative significance, applicability, and
defensibility of the indication of value derived from each approach and
places the most weight and reliance on the one which in his/her judgment
best approximates the value of the property being appraised.

[Estimated Market Value]{.underline}.

The estimated market value is the appraiser\'s opinion or conclusion
resulting from the application of the framework of appraisal analysis,
including final reconciliation, to the appraisal problem at hand. It
stems from the analysis of the indications of value developed in each
approach to value estimation utilized in the appraisal. It is that value
which most nearly represents what the typically informed, rational
purchaser would pay for a residential property (subject property) if it
were available for sale on the open market as of the date of the
appraisal given all the data (and only those data) utilized by the
appraiser in his/her analysis.

The estimated market value is just that \... an estimate. Therefore, it
must be appropriately rounded to eliminate any implication or
unwarranted claim of excessive precision accuracy. Rounding brings the
estimate to a reasonable degree of accuracy consistent with the
standards of the appraisal profession, the price level or range within
which the value falls and the type of property being appraised.

The ultimate goal will have been reached if the estimated market value
is sound and the appraiser\'s findings sufficiently documented to be
understandable and convincing.

## oOo

(03-31-89) SPECIAL PN

RD Instruction 1922-C

Exhibit A-1

## Single Family Residential Appraisal

## Sequential Analysis

Sequential analysis of sales data is a reliable method of determining
local market trends in real estate values. In order to utilize this
method to make adjustments in the appraisal for the date of sale (time)
in the sales comparison analysis section of Form RD 1922-8, \"Uniform
Residential Appraisal Report,\" comparable sales data must be collected
and analyzed for a specific time period. The appraiser will analyze
comparable sales prices on a price per square foot basis over a
specified time period and derive a percent change in selling price for
the local real estate market.

The following is an example of sequential analysis and represents
comparable sales data available in a geographical area from March 1986
thru March 1987 (12-month period):

Sale Date Sale Square ft. of Price sq. ft. Percent Months from

of Price Living Area Living Area Change Base \*\*

Sale from

Base\*\*

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

1\. 3/86 \$40000 1220 \$32.79 -0- BASE

2\. 4/86 \$36000 1100 \$32.72 -.21 1

3\. 5/86 \$35000 1050 \$33.33 -1.64 2

4\. 6/86 \$38500 1200 \$32.08 -2.17 3

5\. 6/86 \$42000 1375 \$30.55 -6.83 3

6\. 7/86 \$32000 1000 \$32.00 -2.41 4

7\. 9/86 \$37500 1180 \$31.78 -3.08 6

8\. 10/86 \$31000 960 \$32.29 -1.52 7

9\. 12/86 \$39250 1320 \$29.73 -9.33 9

10\. 12/86 \$35000 1100 \$31.82 -2.96 9

11\. 1/87 \$38000 1250 \$30.40 -7.29 10

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

Totals -34.16 54

DATE OF ANALYSIS: MARCH 1987
\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-- \-\-\-\-\-\-\-\-\--

(1-3-90) PN 125

RD Instruction 1922-C

Exhibit A-1

Page 2

To determine the percent change in price per month in the above example,
the appraiser will compare the price per square feet of living area on
each comparable sale versus the price per square feet of living area on
the BASE month. Adjustments will be expressed as (+ or -) percent and
summarized in the total section. Selection of comparable sales similar
in amenities and size will provide the appraiser with a more accurate
analysis of time adjustment for a local real estate market.

Sequential Analysis must initially be developed for a 12-month period of
time. In some geographic areas, comparable sales data may not be
available for every month of the calendar year, as shown in the above
example. Thereafter, appraisers must update information on a monthly
basis which necessitates replacing the BASE month to properly identify
the next 12-month sequential analysis update on percentage changes for
time adjustments in the real estate market.

In order to complete the sequential analysis, \*\* Omit the BASE month
and determine the average of the two columns.(See Totals).

-34.16 ö 10 months = -3.42 Average percent of price change

54 ö 10 months = 5.4 Average number of months from the BASE month

-3.42 ö 5.4 = -.63 percent change per month (-.0063 as a decimal)

-.63 x 12 = -7.56 (-.0756 as a decimal) percent change per year

-7.56 % is the average annual percent change in selling prices per

year for the local real estate market in this example.

Positive values reflect appreciation whereas Negative values reflect

declining values.

Therefore, when completing appraisals in a specified real estate market,
the appraiser would adjust the date of sale (time) for comparable sales
by the average annual percent change in selling price, determined by
sequential analysis.

Adjusting a comparable sale price to the subject property for date of
sale (time) would be completed as shown in the following example:

Assume a comparable property sold 10 months ago for \$42,000 with an

average monthly percent change in selling price of -.63% (-.0063 as a

decimal).

-.0063 per month x 10 months = -.063 total change in 10 months.

-.063 x \$42,000 = -\$2646 (always round to the nearest \$100.00)

-\$2646 rounded = -\$2600 + 42,000 = \$39,400 sale price adjusted for

time. This adjustment would appear as -\$2600 in the \"Date of

RD Instruction 1922-C

Exhibit A-1

Page 3

Sale/Time\" column in the sales comparison analysis section of Form

RD 1922-8. Positive percent changes (increase in average monthly

selling price) would be added to the comparable sale price to adjust

for time.

Sequential Analysis is an effective method to evaluate real estate
market conditions and related economic trends within a specified
geographic area.

RD Instruction 1922-C, Exhibit A-1 worksheet, provides a worksheet
format whereby Rural Development appraisers can perform sequential
analysis computations. The worksheet may be retained in a binder for
historical data purposes on specified geographic areas. This will
provide Rural Development staff with real estate value trends and
valuable data base information which can be referenced in the completion
of the sales comparison analysis section of Form RD 1922-8.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

(3-31-89) SPECIAL PN

RD Instruction 1922-C

Exhibit A-1

Page 4

RD 1922-C, EXHIBIT A-1 WORKSHEET

SEQUENTIAL ANALYSIS

(Specify Month/Year)

Comparable Date Sale Square ft.of Price sq. ft. % Change Months

Sale of Price Living Area Living Area from BASE \* from

Sale BASE \*

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

1\. -0- BASE

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

2\.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

3\.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

4\.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

5\.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

6\.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

7\.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

8\.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

9\.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

10\.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

TOTALS

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

Column A Column B

\* OMIT the BASE MONTH and determine the average of Column A and Column
B.

\-\-\-\-\-\-- ö \-\-\-\-\-\-\-- = \-\-\-\-- Average percent of price
change.

Column A Column B

\-\-\-\-\-\-- ö \-\-\-\-\-\-\-- = \-\-\-\-- Average number of months
from the BASE month

Total Months

Months from

from BASE BASE

\-\-\-\-\-\-- ö \-\-\-\-\-\-\-- = \-\-\-\-- % change per month (as a
decimal).

Avg. % Avg.No.

of Price of months

change from the

BASE

\-\-\-\-\-\-- x 12 months = \-\-\-\-- % Average annual percent change in
prices

per year

## oOo 

RD Instruction 1922-C

Exhibit B

SINGLE FAMILY HOUSING INCOME APPROACH FOR

NONPROGRAM PROPERTY

TABLE OF CONTENTS

Page

Part I General. 1

Part II Definitions. 1

Part III Data Requirements. 2

Part IV Estimating the Gross Rent Multipliers. 3

Part V Adjusting Market Rent. 4

Part VI Estimating Market Value of the Subject Property. 7

Grid A Gross Rent Multiplier Grid. 9

Grid B Market Rent Grid. 10

Grid C Comparable Rental Grid. 11

Grid D Final Value Estimate Grid. 12

(3-31-89) SPECIAL PN

RD Instruction 1922-C

Exhibit B

Page 1

## SINGLE FAMILY HOUSING INCOME APPROACH

## FOR NONPROGRAM PROPERTY

Part I. [General]{.underline}.

Single family residential properties which meet program standards are
typically not purchased for investment income or profit. However, Rural
Development single family housing (SFH) inventory property may be sold
to investors for rental purposes. The income approach using the gross
rent multiplier analysis can therefore, be an extremely effective tool
in estimating the Market Value of nonprogram properties. The income
approach using the gross rent multiplier in accordance with this exhibit
may be used as part of the appraisal process for nonprogram Rural
Development inventory SFH property.

Part II. [Definitions]{.underline}.

A. [The Income Approach]{.underline}: An alternative approach to the
value of real property which measures value from use to the typically
informed, prudent purchaser investor, basically through the principals
of substitution and marginal productivity.

B. [Gross Rent Multipliers]{.underline}: The ratio between the sale
price of a residential property and its gross monthly unfurnished
rental.

Example: Sale Price divided by the Gross Monthly unfurnished rent equals
Gross Rent Multiplier

C. [The Gross Rent Multiplier Analysis (GRMA)]{.underline}: A procedure
that analyzes sale prices and gross rents of comparable properties and
applies the results in estimating the value of the subject property.
This analysis compares properties on the bases of their capacity to
generate income, and of the relationship of that income to sale price.
This analysis is based on the proposition that an informed purchaser
must receive a return on investment (in income or amenities) of at least
as much and embodying similar risk as could be received from an
alternative investment. The GRMA estimates market value by multiplying
the gross market rental of the subject property being appraised by a
multiplier developed from a number of actual sales transactions for
comparable properties.

D. [Market Rent]{.underline}: The rent a property would most probably
command in the open market as indicated by current rentals being paid
for comparable space as of the effective date of the appraisal.

E. [Mean, Median, and Mode]{.underline}:

1\. Mean: The calculated average.

2\. Median: A positional average.

3\. Mode: The most frequent value.

(3-31-89) SPECIAL PN

RD Instruction 1922-C

Exhibit B

Page 2

Example Sale Data (from low to high):

[Comparable]{.underline} [Monthly Rent]{.underline}

1\. \$100

2\. \$110

3\. \$110

4\. \$115

5\. \$115

6\. \$115

7\. \$120

8\. \$120

9\. \$125

10\. \$125

Mean= \$116 \[\$1,155 (the total monthly rents) divided by

10 (the Number of Comparables) equals mean rent of \$116\]

Medium= \$115 \[10 (total number of comparable sales) plus 1,

divided by 2 equals 5.5, which based on the above sale No.

5 (\$115) plus sale No. 6 (\$115) equals \$230 divided by 2

equals medium rent of 8115\]

Mode=\$115 \[\$115 appears most often in the above rents\]

Part III. [Data Requirements]{.underline}.

A. To utilize the GRMA approach, information concerning the sale prices
and gross monthly unfurnished rentals of comparables is required. Form
RD 1922-12, \"Nonfarm Tract Comparable Sales Data,\" is to be used to
store data on comparable rental property sales including gross monthly
unfurnished rent. An adequate quantity of reliable and verified data is
required for appropriate application of the GRMA.

B. Comparable sales properties must be comparable with the subject
property and the appraiser must note enough details to ascertain they
are comparable. This involves comparing information about the type,
area, number of rooms, functional utility, value range, and condition of
the properties to be compared. The comparable properties should have
been rented at the time of sale and the rent amount verified. Comparable
sales must be bonafide, arm\'s length transactions and not more than 12
months elapsed between the comparable sale date and the date of the
subject property appraisal. Generally, 8 to 10 reliable comparable sales
of rental properties should be found although more would be desirable.
GRMA should normally not be given as much weight in determining the
final value estimate if fewer than 4 comparables are available.

RD Instruction 1922-C

Exhibit B

Page 3

Part IV. [Estimating the Gross Rent Multipliers]{.underline}.

The appropriate gross rent multiplier for the subject property is
determined from several current comparable sales of rental properties
from the local market. The same standards for comparable sales
properties apply in gross rent multipliers analysis as are applied in
the direct sales comparison approach. The comparable properties must be
current and as nearly comparable with the subject property as possible.
The gross rent multiplier (GRM) for a residential property is obtained
by dividing the sale price (SP) of a property by its gross monthly
unfurnished rental (GR), i.e., SP ö GR = GRM. Gross rent multipliers
normally fall into a pattern in a relatively narrow range. This will
occur if the properties are truly comparable to the subject property and
to one another anc if no unusual market influences or individual
property influences distort the results. The appraiser then selects the
gross rent multiplier indicated by the pattern as that which is
applicable to properties of the type being appraised in the current
local market. This is the multiplier to be applied to the estimated
market rental of the subject property to provide an estimate of market
value by the income approach.

If there is a sufficient number of comparable rentals, statistical
calculations, such as mean, median, and mode can be used to provide an
indication of the GRM for the subject property.

[Example 1]{.underline}. Determining the Estimated Gross Rent Multiplier

GROSS RENT MULTIPLIER GRID

Comparable Verified Verified Monthly Gross Indicated

Property Sale Price Unfurnished Rent at Time Gross Rent

of Sale Multiplier

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

1\. S. Smith \$18,500 \$210 88

2\. B. Baily \$15,000 \$150 100

3\. D. Tracy \$12,000 \$125 96

4\. D. Mitchell \$17,500 \$175 100

5\. C. Brown \$15,750 \$150 105

6\. L. Abner \$13,500 \$135 100

7\. M. Hammer \$21,000 \$225 93

8\. C. Bronson \$14,500 \$150 97

9\. C. Eastwood \$17,500 \$175 100

10\. B. Cosby \$20,000 \$200 100

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

Mean = 98 Median = 100 Mode = 100 Range = 88-105

Gross Rent Multiplier indicated = 100

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

(3-31-89) SPECIAL PN

RD Instruction 1922-C

Exhibit A

Page 4

Part V. [Adjusting Market Rent]{.underline}.

If current sales and comparable properties are available, adjustments in
comparable rentals for differences between comparable properties and the
subject property should not be made. If there are few comparable
rentals, some of which are not sufficiently similar to the subject
property to permit direct comparison, adjustments must be made.

Rents are adjusted by selecting the rent that is most probable for the
property, given the market data and similarities of the properties.
Reconciliation may be assisted by reducing comparable rentals to a
per-unit basis which is especially effective in adjusting differences in
size, baths, carports, etc.

If there is a sufficient number of comparable rentals, simple statistics
such as mean, median, and mode can be used to provide an indication of
market rental; however, adjustment can sometimes give a more defined
indication of market rental.

RD Instruction 1922-C

Exhibit B

Page 5

[Example 2]{.underline}: Estimating Market Rental

Market Rent Grid

Comparable Date of Monthly Carport/ Square

Sale Rent Garage Feet

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

1\. S. Smith 7/86 \$210 Yes 1100 6/3/1-1/2

2\. B. Baily 11/86 \$150 No 1075 6/3/1

3\. D. Tracy 4/86 \$125 No 1050 6/2/1

4\. D. Mitchell 10/86 \$175 No 1125 6/3/1-1/2

5\. C. Brown 9/86 \$150 No 1150 6/3/1

6\. L. Abner 9/86 \$135 No 1100 6/2/1

7\. M. Hammer 2/86 \$225 Yes 1150 6/4/1-1/2

8\. C. Bronson 10/86 \$150 No 1100 6/3/1

9\. C. Eastwood 6/86 \$175 No 1075 6/3/1-1/2

10\. B. Cosby 5/86 \$200 Yes 1110 6/3/1-1/2

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

Subject XXXXXX XXXXX No 1100 6/3/1

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

Mean: \$170 Median: \$163 Mode: 150 Range: \$125-\$225

\* Estimated Rent indicated: \$160

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

\*Adjustments via the \"Matched Pair Sales Extraction\" may provide a
more defined estimate of market rent of the subject property. The
\"Matched paired\" concept is used to abstract adjustments from the
market when more than one difference exists. One rental is designated as
the base rental which is adjusted for all known differences except for
the one being sought. Further comparison is made with the other rental
in the pair and any remaining differences in rent is attributed to the
remaining comparison.

(3-31-89) SPECIAL PN

RD Instruction 1922-C

Exhibit B

Page 6

[Example 3]{.underline}: Monthly Rent Adjustments

[Comparable]{.underline} [Features]{.underline} [Monthly
Rent]{.underline}

#7 M. Hammer 4 bedrooms, 1-1/2 bathrooms, \$225

& carport or garage

#1 S. Smith 3 bedrooms, 1-1/2 bathrooms, \$210

& carport or garage

Monthly rent attributed to added bedroom \$ 15

#1 S. Smith 3 bedrooms, 1-1/2 bathrooms, \$210

& carport /garage

#4 D. Mitchell 3 bedrooms, 1-1/2 bathrooms, \$175

w/o carport/garage

Monthly rent attributed to carport or garage \$ 35

#9 C. Eastwood 3 bedrooms, 1-1/2 bathrooms \$175

#8 C. Bronson 3 bedrooms, 1 bathroom \$150

Monthly rent attributed to 1/2 bathroom \$ 25

[Example 4]{.underline}: Making Adjustments to Market Rent

COMPARABLE RENTAL GRID

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

Comp. Comp. Comp. Comp.

[Feature\_\_\_\_\_\_\_\_\_\_\_Subject\_\_\_\_\_Rental 1\_\_\_\_\_Rental
2\_\_\_\_Rental 3\_\_\_Rental 4]{.underline}

Rent XXXXXX \$210 \$150 \$125 \$175

Bathrooms 1 1-1/2 (-\$25) 1 (=) 1 (=) 1-1/2 (-\$25)

Room Count 6 6 (=) 6 (=) 6 (=)

Garage/ No Yes (-\$35) No (=) No (=) No (=)

Carport

Bedrooms 3 3 (=) 3 (=) 2 (.\$15) 3 (=)

SF 1100 1100 (=) 1075 (=) 1050 (=) 1125 (=)

Living Space

location Aver. Aver.(=) Aver.(=) Aver.(=) Aver.(=)

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

[Net Adjustment
XXXXXX\_\_\_\_\_\_\_\_\_\_\_\_-\$60\_\_\_\_\_\_\_\$0\_\_\_\_\_\_\_\_\_\_+\$15\_\_\_\_\_\_\_\_-\$25\_\_]{.underline}

[Indicated rent XXXXXX \$150 \$150 \$140 \$150\_\_]{.underline}

[of
subject\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_]{.underline}

RD Instruction 1922-C

Exhibit B

Page 7

(Revision 1)

NOTE: Both plus and minus adjustments must be made. The\
rents will usually vary after applying the net adjustments\
requiring reconciling into a final indicated rental value\
estimate. In this case the estimated market rental of this\
subject property is \$150 per month. By making adjustments\
to the comparable rental properties, Comparable 2 provides a\
more supportable estimate of market rent than Comparable 4.\
(Revised 1-3-90, PN 125)

Part IV. [Estimating Market Value of the Subject Property]{.underline}.

After the market rental for the subject property and the gross rent
multiplier have been established via comparative analysis with rental
properties and sales of rental properties, the estimate of \"as
improved\" market value (MV) of the subject property is obtained by
multiplying the market rental (MR) by the gross rent multiplier (GRM).

MR X GRM = MV by Income Approach

When the market value by the income approach estimate is known the
appraiser must decide whether an additional adjustment is needed due to
the differences in condition between the subject property and the
comparables used in the appraisal. A review of the subject and
comparables short and long term physical depreciation breakdown is a
good indication of when this adjustment is needed. Therefore, if the
subject property\'s condition at the time of the appraisal and the
comparable properties\' condition at the time of their sales are in the
same general condition, put a zero in item #4 of the \"Final Value
Estimate Grid\" as no adjustment would be needed. However, if the
subject property\'s condition is not in the same general condition as
the comparable used in the appraisal, an estimated dollar adjustment for
the difference in condition is to be made in Item #4 of the Final Value
Estimate Grid. (Revised 1-3-90, PN 125)

RD Instruction 1922-C

Exhibit B

Page 8

(Revision 1)

[Example 5]{.underline}. Determining the estimated market value of the
Subject Property \"as is\".

Final Value Estimate Grid

1\. Estimated Market Rent of subject property being
appraised\...\...\$150

(from Example 4)

2\. Gross rent
multiplier\...\...\...\...\...\...\...\...\...\...\...\...\...\...\$100

(from Example 1)

3\. Indicated value of the Subject property via
the\...\...\...\....\$15,000

income approach as improved (example 4 x example 1)

4\. Property Condition
Adjustment\...\...\...\...\...\...\...\...\...\....-\$2,500

(to be documented and attached)

5\. Estimated value of subject property \"as
is\"\...\...\...\...\.....\$12,500

(Example 5, #3-#4=#5)

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

[Note]{.underline}: Items 1, 2, and 5 above are to be transposed on the
Indicated Value by Income Approach Section of Form RD 1922-8 \"Uniform
Residential Appraisal Report\"

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

Date ([date of Appraisal]{.underline}) Signature ([signature of
Appraiser]{.underline})

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

All steps involved in the GRMA must be fully documented and attached to
Form RD 1922-8 to support the \"as is\" estimated market value via the
income approach.

The following Grids can be reproduced and utilized by Rural Development
Appraisers when the income approach is utilized on appraisals of
nonprogram inventory property.

RD Instruction 1922-C

Exhibit B

Page 9

GRID A

GROSS RENT MULTIPLIER GRID

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

Comparable Verified Verified Monthly Gross Indicated Gross

Property Sale Price Unfurnished rent at Rent Multiplier

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_time of
sale\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mean: \_\_\_\_\_\_\_\_\_ Median:\_\_\_\_\_\_\_\_\_
Mode:\_\_\_\_\_\_\_\_\_\_\_ Range:\_\_\_\_\_\_\_\_.

Gross Rent Multiplier Indicated: \_\_\_\_\_\_\_\_\_\_\_

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

(3-31-89) SPECIAL PN

RD Instruction 1922-C

Exhibit B

Page 10

Grid B

MARKET RENT GRID

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

Comparable Date of Monthly Carport/ Square Room Other

[Property\_\_\_\_\_Sale\_\_\_\_\_\_Rent\_\_\_\_\_\_Garage\_\_\_\_\_Feet\_\_\_\_\_Count\_\_\_\_\_\_\_]{.underline}

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SUBJECT XXXXX XXXXX

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

Mean:\_\_\_\_\_\_\_\_\_ Median:\_\_\_\_\_\_\_\_\_ Mode:\_\_\_\_\_\_\_\_
Range:\_\_\_\_\_\_\_

Estimated Rent Indicated :\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

RD Instruction 1922-C

Exhibit B

Page 11

Grid C

COMPARABLE RENTAL GRID

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

Comp Comp Comp Comp

[Feature\_\_\_\_\_\_\_\_\_Subject\_\_\_\_\_Rental #1\_\_\_Rental
#2\_\_\_Rental #3\_\_\_Rental #4]{.underline}

Rent XXXXXXX

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

Bathrooms

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

Rm. Count

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

Garage/

Carport

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

Bedrooms

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

Square

Feet-Living

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

Location

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

Other

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

Other

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

Other

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

Net Adjustment XXXXXXXX

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

Indicated Rent XXXXXXXX

of Subject

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

(3-31-89) SPECIAL PN

RD Instruction 1922-C

Exhibit B

Page 12

Grid D

FINAL VALUE ESTIMATE GRID

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

1\. Estimated Market Rent of Subject property being

Appraised
\...\...\...\...\...\...\...\...\...\...\...\...\...\$\_\_\_\_\_\_\_\_\_\_

2\. Gross Rent
Multiplier\...\...\...\...\...\...\...\...\....\$\_\_\_\_\_\_\_\_\_\_

3\. Indicated Value of the Subject Property Via the

Income Approach as
Improved\...\...\...\...\...\...\.....\$\_\_\_\_\_\_\_\_\_

4\. Property Condition Adjustment
\...\...\...\...\...\.....\$\_\_\_\_\_\_\_\_\_

5\. Estimated Value of Subject Property \"as
is\"\...\....\$\_\_\_\_\_\_\_\_\_

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

Note: Items 1, 2, and 5 above are to be transposed on the Indicated
Value by Income Approach Section of Form RD 1922-8. \"Uniform
Residential Appraisal Report.\"

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

DATE:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Signature:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

## oOo

RD Instruction 1922-C

Exhibit C

GUIDELINES FOR CONTRACT APPRAISALS

TABLE OF CONTENTS

Page

Part I General 1

Part II Program Responsibilities 1

A. Government Inspection of Property 1

B. Preparation of Procurement Request 2

Part III Evaluation of Offers 4

A. Negotiated Procurement 4

B. Basis for Contract Award 5

Attachment 1 Sample Statement of Work for Contract

Appraisal Services

(1-3-90) PN 125

RD Instruction 1922-C

Exhibit C

Page 1

(Revision 2)

## GUIDELINES FOR CONTRACT APPRAISALS 

Part I. [General]{.underline}.

This exhibit provides guidance for the procurement of contract appraisal
services for single family housing residential properties. Contract
appraisal authorities are in RD Instruction 2024-A. (Revised 07-21-93,
PN 209.)

Part II. [Program Responsibilities]{.underline}.

A. Government Inspection of Property. In accordance with RD Instruction
2024­-A, contract services shall not involve decision-making or other
inherently Governmental functions. Accordingly, prior to initiating
procurement action for appraisal of single family housing residential
property, program personnel will conduct an on-site inspection of the
dwelling and/or building site. The purpose of the inspection is to
determine the following:

1\. Suitability of the dwelling and/or site for retention in the program
in accordance with 7 CFR part 3550. (Revised 01-23-03, SPECIAL PN.)

2\. Eligibility of the dwelling and/or site in accordance with

7 CFR part 3550. (Revised 01-23-03, SPECIAL PN.)

3\. Thermal performance of the dwelling in accordance with RD
Instruction 1924-A.

4\. Rural area determinations in accordance with 7 CFR part 3550.

(Revised 01-23-03, SPECIAL PN.)

5\. Flood insurance requirements in accordance with RD\
Instruction 426.2.

6\. Environmental program compliance in accordance with

RD Instruction 1940-G.

7\. Repairs necessary to insure the property meets the Agency\'s lending
requirements. (This list of repairs will be provided to the contractor
for the purpose of insuring the appraisal reflects the \"as improved\"
value.)

(01-03-90) PN 125

RD Instruction 1922-C

Exhibit C

Page 2

(Revision 2)

B. [Preparation of Procurement Request]{.underline}. Program personnel
will prepare and submit a \"Request for Contract Services for
Custodial/Inventory Property or Program Services\" (Form RD 1955-62) to
the Contracting Officer (CO) to initiate procurement for contract
appraisal services. The following provides guidance, in addition to the
Forms Manual Insert for Form RD 1955-62, for the preparation of the
procurement request:

1\. [Statement of Work]{.underline}. An integral part of the procurement
request is the description of work requested or the Statement of Work
(SOW). A sample SOW for contract appraisal services is provided in
Attachment 1 to this Exhibit. Program personnel should review the
requirements in the sample to insure that the work requirements are
expressed in concise, accurate, and comprehensible terms. It may be
necessary to modify the sample SOW to insure the final SOW addresses
particular requirements and circumstances. The objective is to develop a
SOW that sets forth minimum standards which will provide Rural
Development with a method of determining if the contractor will meet the
contractual requirements.

2\. [Other Considerations]{.underline}. The following provides other
requirements which should be taken into consideration in the development
of the\
procurement request. Program personnel should discuss these
considerations with the CO.

a\. [Government Furnished Material]{.underline}. The Government shall
provide the following to the Contractor for use in the performance of
the requirements in the SOW:

1\. Legal description and/or address of the property to be appraised;
list of property repairs, if appropriate; plans and specifications for
new construction; and any other information necessary for the Contractor
to complete the appraisal.

2\. RD Form 1922-8 \"Uniform Residential Appraisal Report\" and Form
1007 \"Square Foot Appraisal Form\" to be used in the preparation of the
appraisal.

3\. Appropriate Rural Development and Regulations will be available for
review at \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ during working hours. A copy
of RD Instruction 1922-C, with Exhibits A, A-1, and B, is furnished to
potential offerors.

RD Instruction 1922-C

Exhibit C

Page 3

b\. [Orientation Meeting]{.underline}. After contract award, the
Contractor shall attend an orientation meeting with the Contracting
Officer\'s Representative (COR) for the purpose of acquainting the
Contractor with Rural Development. The COR shall respond to questions;
further amplify and clarify the appraisal process; and provide copies of
appropriate Rural Development regulations and procedures. It is the
Contractors responsibility to be knowledgeable of Rural Development
procedures and policy and to insure that her/his employees are prepared
and trained to perform the requirements specified in the contract on
contract effective date.

c\. [Professional Insurance Coverage]{.underline}. The Contractor shall
maintain professional insurance coverage in accordance with local and
State government statutes.

d\. [Technical Considerations]{.underline}. Personnel proposed for work
on the contract must possess demonstrated knowledge and experience in
appraising single family housing residential property.

e\. [Progress Reports]{.underline}. The Contractor shall provide a
written report of the status of assigned tasks to the Contracting
Officer\'s Representative (insert report interval, i.e., weekly,
bi-weekly).

f\. [Preparation of Proposals]{.underline}. To be considered for award,
offerors shall submit a proposal which clearly documents the offeror\'s
ability to accomplish the requirements in the SOW. Offerors should
furnish, as a minimum, the following with their proposals:

1\. A brief written summary of experience and qualifications of key
person(s) or firms expected to perform the professional services
specified in the SOW.

2\. Provide all necessary documentation and certifications to
substantiate that the offeror is licensed and/or authorized to perform
residential appraisals within the area specified in the SOW.

3\. At a minimum two (2) written statements of performance from
individuals or firms (including Rural Development, if possible) for whom
the offeror has performed similar professional services. These
statements shall include the name, address, and telephone number of the
reference.

(1-3-90) PN 125

RD Instruction 1922-C

Exhibit C

Page 4

g\. [Inspection and Acceptance]{.underline}. The Contracting Officer or
the Contracting Officer\'s duly authorized representative shall inspect
and accept the supplies and/or services provided under this contract. No
payment shall be made until the work is accepted. If deficiencies are
noted in the inspection, the appraisal shall be returned to the
Contractor for correction within (specify time period for correction,
i.e., hours, days) at no additional cost to the Government.

The Contracting Officer\'s Representative shall serve as the duly
authorized representative of the Contracting Officer.

Part III. [Evaluation Of Offers]{.underline}.

There are two methods of evaluating offers: (1) Negotiated Procurement,
and (2) Basis for Contract Award. The CO [will consult with program
personnel]{.underline} to: (1) Develop evaluation criteria; (2)
Determine the method of evaluating offers; and (3) Perform the technical
review of proposals. While cost is an important criteria in determining
the best offer received, due consideration should also be given to the
qualifications and experience of the offerors as it relates to the
requirements specified in the SOW. The following provides additional
information to be considered during this process:

A. [Negotiated Procurement]{.underline}. Negotiated procurement is a
formal evaluation process which [must be used for all contracts \$25,000
and over]{.underline}. This process involves: (1) Develop evaluation
criteria and assigning weight factors; (2) Convene the technical
evaluation committee to evaluate all technical proposals received; (3)
Establish the competitive range; (4) Negotiate with offerors in the
competitive range; (5) Receive best and final offers from offerors; (6)
Evaluate best and final offers; (7) Source selection; and (8) Debrief
unsuccessful offerors. The following is provided for consideration when
developing evaluation criteria for appraisal services:

1\. Experience and knowledge of the person(s) proposed to perform the
requirements specified in the SOW.

2\. Commitment of the offeror to perform the requirements specified in
the SOW.

3\. Technical approach of the offeror to perform the requirements
specified in the SOW.

(How does the offeror plan to accomplish the requirements prescribed in
the SOW? Is the offeror a designated member of an organization requiring
appraisal education, testing and experience? Is the offeror experienced
in conducting single family housing residential property appraisals?)

RD Instruction 1922-C

Exhibit C

Page 5

B. [Basis for Contract Award]{.underline}. This method [will be used in
evaluating proposals for small purchases under \$25,000]{.underline}.
This process accomplishes the same results as the negotiated procurement
process but does not require the formal technical evaluation committee
or negotiations with the offerors. The evaluation criteria provided in
the formal negotiated procurement process should also provide the basis
for evaluating offers for these procurements. The following is provided
for consideration when developing the solicitation clause:

The Government intends to award a contract resulting from this
solicitation on the basis of price and other factors. The other factors
are documented evidence of professional training, experience, and a
proposal which demonstrates how the offeror will perform the
requirements specified in the SOW. The Government may reject any or all
offers, or award a contract on the basis of initial offers received
without discussions. The Government can accept and award a contract for
other than the lowest price offered. Therefore, each initial offer
should provide the offeror\'s best price and a written proposal as
outlined above.

(1-3-90) PN 125

RD Instruction 1922-C

Exhibit C

Attachment 1

## SAMPLE

## STATEMENT OF WORK FOR CONTRACT APPRAISAL SERVICES

[Background]{.underline}. Rural Development provides loans to eligible
applicants for single family housing residential property.

[Objective]{.underline}. The Rural Development requires the services of
qualified persons or firms to provide appraisal services for the purpose
of determining the market value of single family housing residential
property. The contractor shall be state certified or licensed in
accordance with Title XI of the \"Financial Institutions Reform,
Recovery and Enforcement Act of 1989.\" If required, the Contractor
shall defend the appraisal in court or in the Rural Development appeals
process. Except where noted herein, the Contractor shall provide all
facilities, materials, supplies, tools, equipment, personnel, and travel
to accomplish the performance of the requirements of this contract.

[Scope]{.underline}. The Contractor shall provide appraisals for
approximately \_\_\_\_\_\_ single family housing residential properties
in \_\_\_\_\_\_\_\_\_ county(s) for a period of 12 months from the date
of award. The appraisals will be used to determine the market value of
single family housing residential property for loan making, servicing,
acquisition, and sale. The Contractor shall be notified of required work
through the issuance of a Task Order. (NOTE: THE SOLICITATION SHOULD
PROVIDE SPECIFIC DETAILS REGARDING THE INFORMATION WHICH WILL BE
PROVIDED IN THE TASK ORDER. FOR EXAMPLE, THE TASK ORDER SHOULD SPECIFY
THE PROPERTY SUITABILITY, NEW CONSTRUCTION OR EXISTING STRUCTURE, REPAIR
REQUIREMENTS (ATTACH REPAIR REQUIREMENT DEVELOPED DURING THE GOVERNMENT
INSPECTION), ETC.) The required work as defined herein shall be
submitted to the Contracting Officer\'s Representative (COR) within
\_\_\_ calendar days of issuance of the Task Order. in emergency cases,
a shorter time period may be required for submission of the appraisal.

(01-27-93) PN 199

RD Instruction 1922-C

Exhibit C

Attachment 1

Page 2

[Detailed Work Requirements]{.underline}. The Contractor shall provide
appraisal services for Rural Development as follows:

1\. Appraisals shall be completed on Form RD 1922-8, \"Uniform
Residential Appraisal Report,\" (attached) and Form 1007, \"Square Foot
Appraisal Form,\" (Marshall and Swift) (attached), in accordance with RD
Instruction 1922-C (attached), Marshall and Swift Residential Cost
Handbook, and RD Forms Manual Inserts for the required forms. The
appraisal shall be in typewritten or legible ink print form. (NOTE:
AUTOMATION VERSIONS of Form RD 1922-8 and Form 1007, including the
Marshall and Swift ON-Line Computerized Cost Data System - RE2 program
(report), may be permitted with the prior approval/acceptance of the
Rural Development State Director.) The appraisals shall be completed
giving due consideration for the following:

A. [Location of property]{.underline}: Adhere to legal descriptions and
surveys for proper location of site to avoid errors such as
infringement, encroachment, etc. when appraising a property.

B. [Use of comparables]{.underline}: Use comparable sales of single
family residential properties. (NOTE: Choose one of the following to be
included in the Statement of Work (SOW): THE USE OF Rural Development
COMPARABLE SALES IS PROHIBITED; or THE USE OF Rural Development
COMPARABLE SALES IS AUTHORIZED.)

C. [Property improvements]{.underline}: In the event Rural Development
provides to the Contractor a list of repairs required to improve the
property, these repairs shall be reflected in the appraisal process.

D. [Depreciation]{.underline}: Adjustments to the cost approach and the
sales comparison analysis that reflect a decrease in value of a
structure or other improvements to the site due to physical functional
and external obsolescence will be determined.

E. [Approaches to property value]{.underline}: The market data approach
(comparable sales) and the cost approach shall all be considered in
reconciling the final estimate of value. The income approach may be used
in conjunction with non-program property and is considered an optional
approach for program property.

2\. Documentation supporting the development of the appraisal shall be
submitted to the COR in accordance with RD Instructions 1922-A and
1922-C.

## oOo 

RD Instruction 1922-C

Exhibit D

Page 1

(Revision 1)

## **Single Family Housing** 

## **Residential Appraisal Reviews**

The purpose of this exhibit is to provide Rural Development employees
responsible for residential appraisal, appraisal reviews and/or
residential appraisal training functions a uniform residential appraisal
review format for use in the Rural Housing (RH) loan and guaranteed RH
programs.

**[State Director\'s Responsibilities]{.underline}**. The State Director
will designate or delegate authority to the Rural Housing Chief or
Appraisal Chief to designate qualified personnel to conduct technical
and field appraisal reviews. These employees, as review appraisers, must
have recent relevant, documented appraisal experience or other factors
which clearly establish the reviewer\'s qualifications. Review
appraisers will achieve the equivalent education in accordance with
Rural Development Instruction 1922-A. The State Director will designate
County Supervisors to perform administrative reviews.

**[Training of County Supervisors]{.underline}**. State Directors will
determine and establish the training needs for County Supervisors
completing administrative reviews. The State Appraisal Staff will
provide training when necessary to assure adequate administrative
reviews are being completed.

**[Types of Reviews]{.underline}**. There are three types of reviews for
appraisals, namely \"Administrative,\" \"Technical\" and \"Field.\" An
administrative review will always be done and a sufficient number of
technical and field reviews will be completed to ensure that the Agency
is getting quality appraisals from a contract or fee appraiser. An
explanation of the types and frequencies of the reviews are as follows:

**1. [Administrative Review]{.underline}**

An administrative review is the least detailed of the reviews and will
be done on all appraisals. It is made to determine whether the appraisal
presents an appropriate value for market conditions. The reviewer
determines whether the appraisal is complete, the mathematics are
correct, there is a proper number of current comparables, and that both
the cost and comparable sales approaches were used to establish market
value. Administrative reviews done by County Supervisors on Form RD
1922-15, \"Administrative Appraisal Review for Single Family Housing\"
will be signed, dated, and forwarded to the State Appraisal Staff.

(Revised 04-06-94, PN 221.)

(01-12-94) PN 217

RD Instruction 1922-C

Exhibit D

Page 2

(Revision 1)

The administrative review is adequate inspection and recommendation for
payment of the contract appraiser. This review should be completed at
the earliest opportunity but must be completed within 7 days of the
receipt of the contractor\'s invoice.

**2. [Technical Review]{.underline}**

A technical review is to determine whether the appraisal made by the
appraiser meets the technical requirements of the Uniform Standards of
Professional Appraisal Practices (USPAP) as promulgated by the Appraisal
Foundation and RD Instruction 1922-C. The reviewer must be satisfied the
appraiser presented an appraisal that was complete, mathematically
correct, the reasoning clear and the value conclusion supported.

Technical reviews will be done in Section A of Form RD 1922-14,
\"Residential Appraisal Review for Single Family Housing.\"

The first appraisal completed by either a contract or fee appraiser will
have an initial technical review completed. Additional technical reviews
may be necessary after the initial review. Such reviews will be at the
discretion of the State Appraisal Staff depending on the severity of the
problems encountered in the initial technical review. In addition to the
initial review, technical reviews will be done in a random \"spot
check\" method established by the State Director. The schedule of the
random \"spot checks\" should vary annually to ensure adequate controls
are established for program operations. Field offices will be advised of
these schedules and all changes.

The State Director will establish the percentage of appraisals that will
have technical reviews. The National Office recommends the minimum be 15
percent or more. These reviews must insure that the appraiser continue
to meet the requirements of USPAP and RD Instruction 1922-C. They also
provide a method of internal control for the State Appraisal Staff.

A technical review may be requested by the County Supervisor when
problems are detected on the administrative review. These problems must
be significant and result in an appraisal which does not support the
value conclusion. County Supervisors will document the nature of their
concerns utilizing Form RD 1922-15. The State Appraisal Staff will
advise the County Supervisor whether to forward the appraisal to the
State Office for a technical and/or field review prior to recommending
payment and approval of the loan.

RD Instruction 1922-C

Exhibit D

Page 3

(Revision 3)

In accordance with the Prompt Payment Act, the invoices must be signed
off within 7 days of submission by the contractor. Generally, we would
expect a technical review to be completed prior to signing off on the
invoice for payment for the first appraisal done by contract or fee
appraisers. (Revised 04-20-05, PN 385.)

**3. [Field Review]{.underline}**

A field review will be completed to determine if the contract/fee
appraiser has followed accepted appraisal techniques and arrived at a
logical conclusion. These will be completed by the State Appraisal Staff
in Section B of Form RD 1922-14. Field reviews should be completed
within 30 days of the completion of the technical review. Field reviews
will be done on a random \"spot check\" basis established by the State
Director. The State Director will establish the number of field reviews
to be completed by the Appraisal Staff with a suggested minimum of one
field review per appraiser per year.

When an applicant appeals an appraisal, a field review, if not already
completed, will be done prior to the appeal hearing.

Appraisals done by Agency transitional appraisers, will be reviewed
annually, in a sufficient quantity, as determined by the State Director,
to assure the internal management controls are effective and residential
appraisals conform to USPAP and RD Instruction 1922-C.

The reviewer will sign and date Form RD 1922-14 and attach a photocopy
of the reviewed residential appraisal forms. The reviewer\'s signature
indicates both the appraisal and the appraisal review was conducted in
accordance with USPAP and RD Instruction 1922-C for staff, contractors,
and fee appraisals and/or in accordance with RD Instruction 1980-D, for
guaranteed lender appraisals. The State Appraisal Staff is responsible
for the overall administration of residential appraisal compliance and
training within the geographic jurisdiction of the State Office.
Appropriate actions will be initiated by the State Appraisal Staff to
ensure compliance with USPAP, RD Instruction 1922-C and National Office
policies governing the residential appraisal process.

The reviewer WILL NOT sign or date Form RD 1922-8, \"Uniform Residential
Appraisal Report,\" (and/or generic versions of the Uniform Residential
Appraisal Report) on the reverse side at the \"Review Appraiser\"
signature line.

(01-12-94) PN 217

RD Instruction 1922-C

Exhibit D

Page 4

(Revision 3)

The Rural Housing Chief and/or Appraisal Chief will maintain a record
keeping system and internal management controls to assure all technical
and field reviews are being accomplished in accordance with this
exhibit. This should include a list of Agency contract appraisers,
guaranteed lenders and their appraisers, by name and address. This
listing will be used to determine the proper number of desk and field
reviews were completed initially and annually.

The State Director is required to establish internal management controls
and systems to document and substantiate residential appraisal
compliance activities, which will be evaluated during National Internal
Reviews and/or Single Family Housing program review trips. (Revised
04-30-96, SPECIAL PN.)

## oOo