USDA Technical Handbook HB-1-3555 §12.5 — Residential Appraisal Reports
USDA HB-1-3555 §12.5 (Residential Appraisal Reports). Gap-fill (verbatim).
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Verbatim provisions from USDA Technical Handbook HB-1-3555 §12.5 — Residential Appraisal Reports — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
USDA HB-1-3555 12.5 — Residential Appraisal Reports
SIDENTIAL APPRAISAL REPORTS Approved lenders must ensure appraisals are completed by a qualified appraiser that is independent and objective. Approved lenders are responsible to review all appraisals for integrity, accuracy, and thoroughness, prior to submission of a complete loan application package to USDA. The lender may pass the cost of the appraisal on to the borrower. The appraisal must have been completed within 180 days of loan closing. Appraisals that are older than 180 days prior to loan closing are eligible for an appraisal update as indicated in this Chapter. A. Qualified Appraiser Approved lenders must select qualified and competent appraisers that are properly licensed or certified, as appropriate, in the State in which the property is located. The appraiser must comply with the current edition of the Uniform Standards of Professional Appraisal Practice (USPAP). Lenders may verify that an appraiser is licensed or certified by checking the Appraisal Subcommittee website found at www.asc.gov/appraiser. B. Appraisal Report All appraisals must comply with the reporting requirements of USPAP available at www.appraisalfoundation.org. All appraisal reports must meet the Uniform Appraisal Dataset (UAD) requirements set forth by Fannie Mae and Freddie Mac. To read definitions of condition and quality ratings, refer to the Fannie Mae and Freddie Mac Uniform Appraisal Dataset, located online at: https://singlefamily.fanniemae.com/delivering/uniform-mortgage-data-program/uniform- appraisal-dataset. The appraiser will utilize the most current residential appraisal forms acceptable to Fannie Mae, Freddie Mac, HUD, or VA.
USDA HB-1-3555 12.5 — Residential Appraisal Reports
05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. Appraisal considerations: x Appraiser/client confidentiality under USPAP Ethics Rules does not permit the appraiser to discuss the appraisal with anyone other than the client, without the client’s permission. It is recommended, but not required, that USDA/RD be identified as an intended user with the lender in the appraisal report obtained. x The market or sales comparison approach is required in all cases. No less than three comparable sales will be used unless the appraiser provides documentation that such comparable sales are not available. The appraiser must use their knowledge of the area and apply good judgment in the selection of comparable sales that are the best indicators of value for the subject property. x The appraiser will determine if the cost approach is required. For example, the property is unique, has specialized improvements, is new manufactured housing, or if the client requests the cost approach to be completed, then the appraiser will identify the source of the cost estimates and will comment on the methodology used to estimate depreciation, effective age, and remaining economic life. x The income approach is only required if the appraiser determines that it is necessary to develop credible assignment results. x An appraisal prepared for REO purposes, loan servicing consideration, or any other purpose other than the guaranteed purchase or refinance transaction is ineligible to be used in the origination of a guaranteed loan. A new appraisal with the intent to arrive at an opinion of value for a purchase transaction must be obtained. Photographs. Photographs in the appraisal report must be in color and be clear and descriptive to identify the property’s condition and quality. Photographs must clearly represent the improvements, any physical deterioration of the property, amenities, conditions, and external influences that may have a material effect on the market value or marketability of the subject property. Lenders will upload the appraisal report at the Application Documents page in the Agency’s automated underwriting system, GUS, by selecting 10002 Appraisal Report and uploading as an individual document. An appraisal report with interior and exterior inspection of the subject property must include at least the following:
USDA HB-1-3555 12.5 — Residential Appraisal Reports
05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. x A front view of the subject property; x A rear view of the subject property; x A street scene identifying the location of the subject property and showing neighboring improvements; x The kitchen, main living area, bathrooms, bedrooms; x Any other rooms representing overall condition, recent updates, such as restoration, remodeling, and renovation; x Basement, including all finished and unfinished rooms; x Attic and/or crawl space when it can be safely accessed without disturbing or moving items that obstruct access or visibility; x Comparable sales, listings, and/or pending sales utilized in the valuation analysis must include at least a front view of each comparable utilized; x The HUD Data Plate and the HUD Certification Label(s) for manufactured homes; and x Condominium projects should include additional photographs of the common areas and shared amenities. Appraisal transfer. An appraisal ordered by another lender for the applicant can be transferred to the lender who will complete the purchase transaction. The initial lender must agree to the transfer of the report. A letter from the initial lender who ordered the appraisal report must be retained in the permanent loan file as evidence the initial lender transferred the report to the lender completing the purchase transaction. The receiving lender must assume full responsibility for the integrity, accuracy, and thoroughness of the appraisal report, including the methods that the original lender used to acquire the appraisal. The appraisal report must be no older than 180 days at loan closing to be valid. Appraisal update. The validity period of an appraisal report can be extended only one time with an Appraisal Update Report. The appraisal may be expired at the time the appraisal update is requested. However, when the original appraisal is subsequently
USDA HB-1-3555 12.5 — Residential Appraisal Reports
05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. updated, the appraisal is valid for no greater than one year from the effective date of the original appraisal report at loan closing. The purpose of an appraisal update request is to determine if the property has declined in value since the effective date of the original appraisal. An update is not eligible to support a higher appraised value of the property. USPAP considers the term “Appraisal Update” as a business term, but regardless of the nomenclature used, when a client seeks a more current value or analysis of a property that was the subject of a prior assignment, this is not an extension of that prior assignment that was already completed; it is simply a new assignment. Refer to USPAP Advisory Opinion 3 for additional clarification, available at www.appraisalfoundation.org. USPAP (Advisory Opinion 3) states that there are three ways that the reporting requirements can be satisfied for this type of assignment: 1. Provide a new report that contains all the necessary information/analysis to satisfy the applicable reporting requirements, without incorporation of the prior report by either attachment or reference. 2. Provide a new report that incorporates by attachment specified information/analysis from the prior report so that, in combination, the attached portions and the new information/analysis added satisfies the applicable reporting requirements. 3. Provide a new report that incorporates by reference specified information/analysis from the prior report so that, in combination, the referenced portions and the new information/analysis added satisfies the applicable reporting requirements. The appraiser may use a pre-printed form or a narrative report to provide the appraisal update, but whichever reporting format is used, it must be in compliance with USPAP. Fannie Mae Form 1004D/Freddie Mac Form 442, Appraisal Update and/or Completion Report, may be utilized by the lender to report the completion of a repair and/or satisfaction of requirements and conditions noted in the original appraisal report. Property flipping. It remains the lenders responsibility to ensure any recently sold property’s value is strongly supported when a significant increase between sales occur. The lender must perform a thorough review of the appraisal report to validate and support the property’s value and protect the applicants from possible predatory real estate lending.
USDA HB-1-3555 12.5 — Residential Appraisal Reports
05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. C. Agency Review The Agency will review appraisals for all guarantee loan requests by completing Form RD 1922-15, Administrative Appraisal Review. If the Agency reviewer detects concerns, the appraisal will be referred to an Agency Review Appraiser for a technical desk or technical field review. Should the Agency licensed appraisers determine the appraisal is not adequate, the lender will be informed of corrections needed prior to issuance of the Conditional Commitment for Loan Guarantee. The lender will be required to correct or complete any appraisal returned by the Agency for corrective action. The lender is responsible to communicate and initiate corrective action with the appraiser. The corrected appraisal will be subject to the same review process described in this section. The Agency retains the right to determine an appraiser is ineligible based upon their failure to comply with requirements of this section. The Agency will notify the lender when appraisals completed by ineligible appraisers will no longer be accepted for the SFHGLP. D. Directors of the Origination and Processing Division Responsibilities A director of the Origination and Processing Division (OPD) will designate or delegate authority to the supervisory staff of the unit or other qualified personnel to conduct administrative appraisal reviews. Technical appraisal reviews must be completed by an Agency certified or licensed appraiser and need only be licensed or certified in one State or territory to perform real estate appraisal duties as Federal employees in all states and territories. Review appraisers must have recent, documented appraisal experience or other factors which clearly establish their qualifications as a reviewer. A director of the OPD will determine and establish the training needs for Rural Development OPD staff completing appraisal reviews. A director of the OPD will also assure that an adequate number of reviews are being completed. E. Types of Agency Reviews There are three types of reviews for appraisals: “Administrative,” “Technical Desk,” and “Technical Field.” An administrative review will be completed for all transactions involving the submittal of an appraisal report. A sufficient number of technical desk and technical field reviews will be completed to ensure the Agency is getting quality
USDA HB-1-3555 12.5 — Residential Appraisal Reports
05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. appraisals for the Guaranteed Loan Program. An explanation of the review types are as follows: 1. Administrative Reviews Administrative reviews are performed by the Agency loan approval official or qualified designee on all appraisals prior to issuance of the Conditional Commitment. This review determines if there are inconsistencies in the appraisal report that may have to be addressed, or if a technical review should be completed by the Agency staff appraiser prior to issuance of the Loan Note Guarantee. Indicators that a technical review may be required will be documented on Form RD 1922-15. x Administrative reviews are completed by the Agency on Form RD 1922-15. This form will be signed, dated, and retained in the Agency file for uploading. This review should be completed prior to issuance of the Conditional Commitment. x If there is a deficiency with an appraisal, the loan approval official should communicate the deficiency to the lender. These deficiencies should include items that affect loan security, value conclusions, or unacceptable property conditions. 2. Technical Desk Reviews A technical desk review is performed to determine whether the appraisal was complete, was clearly reasoned, and had adequate support for the conclusion of value. Technical reviews are performed by the Agency Appraiser. Technical reviews completed by Agency appraisers must follow current USPAP guidelines. x Technical desk reviews may be documented in any format that complies with USPAP and is acceptable for use by RD. Technical reviews should be selected in a random method. The percent of files randomly selected will be set by the direction of the SFHGLP. A director of the OPD, the Quality Assurance and Lender Oversight Division, or designated supervisory staff, will coordinate with Program Support Staff (PSS) in National Headquarters to establish internal management controls and systems to document and substantiate residential appraisal compliance activities, which will be
USDA HB-1-3555 12.5 — Residential Appraisal Reports
05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. evaluated during Internal Control Reviews, Single Family Housing program reviews, and other similar types of reviews. Technical desk reviews of appraisals received by the Agency provide a method of internal control by the appraisal review staff and ensure that appraisals received by the Agency are in compliance with USPAP and Agency regulations. A Director of the OPD, or designated supervisory staff, will support completion of technical desk reviews in coordination with PSS to achieve the appraisal quality control requirements of the Agency. A technical review may also be requested by OPD staff when problems are detected on the administrative review that cannot or will not be addressed by the submitting lender or original appraiser. These problems must be significant and result in an appraisal which does not support the value conclusion. OPD staff will document the nature of their concerns on Form RD 1922-15. The appraisal will then be forwarded to the Appraisal Services Branch for a technical and/or field review prior to approval of the loan. 3. Technical Field Reviews Field reviews will involve on-site visits to the subject property and the comparable properties used in the report. Field reviews are completed by Agency Appraisal staff on a random, spot-check basis to determine if the appraiser has followed accepted appraisal techniques and arrived at a logical conclusion. x USPAP Standard 3 Review is used for technical field reviews. The reviewer may use any reporting format that complies with USPAP and is acceptable for use by RD. A director of the OPD, or designated supervisory staff, and the appraisal review staff are responsible for the administration of residential appraisal compliance and training. Appropriate actions will be initiated by a director of the OPD, or designated supervisory staff, and appraisal review staff to ensure compliance with USPAP and SFHGLP policies governing the residential appraisal process. F. Appraisals in Remote Rural Areas, on Tribal Lands, or in Areas Lacking Market Activity In remote, rural areas, on Tribal lands, or areas with a lack of market activity, as identified by the Agency, it may be difficult to obtain adequate comparable sales to appraise a property. When the sales comparison approach cannot be developed for a
USDA HB-1-3555 12.5 — Residential Appraisal Reports
05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. credible opinion or conclusions regarding value, the lender’s appraiser may use other methods in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP) and perform an appraisal without completing the sales comparison approach to value. Appraisers must explain the exclusion of the sales comparison approach to value and document their efforts to obtain comparable market data along with an explanation for any sales data not used. The primary method that the appraiser is relying on should be summarized to the extent that the user or a review appraiser can understand the reasoning and support of the valuation and conclusions. Remote rural areas are identified by the Agency and are defined as areas with all the following characteristics: x Scattered population; x Low density of residences; x Lack of basic shopping facilities; x Lack of community and public services and facilities; and x Lack of comparable sales data. If the appraiser is using the cost approach, external depreciation based on the remoteness of the site must not be considered; however, factors that impact the site such as immediate proximity to a feedlot, factory, or other similar considerations should be included. If the appraiser is using the income approach, they must explain why the income and expenses used are comparable to the subject property. When a market is established in these areas, the Agency will again require the sales comparison approach to be used.
USDA HB-1-3555 12.5 — Residential Appraisal Reports
TER AND WASTEWATER DISPOSAL SYSTEMS [7 CFR 3555.201] The site must have acceptable water and wastewater disposal systems to ensure the property is decent, safe, sanitary, and meets community standards. Public water and wastewater disposal systems are presumed to meet state and local requirements with no additional documentation or inspections. Private well and wastewater systems that meet the requirements in HUD Handbook 4000.1 or meet the requirements of local and/or state health authority do not require additional inspections other than water purity tests as
USDA HB-1-3555 12.5 — Residential Appraisal Reports
05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. discussed in this section. Evidence will be retained in the lender’s permanent loan file. A. Water Water systems, for existing or new construction, that require continuous or repetitive treatment to be safe bacterially or chemically may be used if the individual water system, with purification, meets the requirements of the state department of health or other comparable reviewing and regulatory authority. 1. Individual Privately Owned x Individual water systems are owned and maintained by the homeowner and subject to compliance with all requirements of the local and/or State Health Authority codes. Water quality tests are required as follows: o The water quality of the well must meet the requirements of the state or local authority. If the state or local authority does not have specific requirements, the maximum contaminant levels established by the Environmental Protection Agency (EPA) will apply. o The local health authority or a state certified laboratory must perform a water quality analysis. The Safe Water Drinking Act does not apply to private wells. Contact the EPA’s Safe Drinking Water Hotline at (800) 426-4791 for referral to certified labs and other inquiries. o The water analysis report must be no greater than 180 days old at loan closing. If the Agency is aware of any recent environmental impacts that may render the previous analysis invalid (for example – chemical spills, natural disasters, etc.) a new report may be required. x The well location for individual water supply systems must be measured to establish the distance from the septic system. The separation distance between the well and septic systems must meet the SF Handbook (HUD Handbook 4000.1) or be found acceptable by the Local and/or State Health Authority. x Individual water systems/wells should be located on the subject property site. If located on an adjacent property, evidence of water rights and recorded