3 PROPERTY ANALYSIS
The FHA guidelines for property analysis include specific
requirements to which appraisers must adhere for the appraisal to
reflect an accurate valuation that win:
o denote any deficiencies in the subject property
o protect HUD's interest in that property
The property analysis includes General Acceptability Criteria for
conducting the appraisal to address FHA minimum property
3-1 APPRAISAL REQUIREMENTS
o The appraiser must make a complete visual inspection of the
subject property - interior and exterior - and complete the
o The appraiser must take photographs that show the sides,
front and rear of the subject property and all improvements
on the subject property with any contributory value. A
photograph of the street frontage is also required.
o The appraiser is required to submit a single photograph of
each comparable sale transaction in the addenda to the
o The map of proposed construction must clearly show proposed
o The appraiser must provide a copy of a local street map that
shows the location of the property and each comparable sale.
o If the subject property is proposed construction and the
improvement has not started, the appraiser should take a
photograph that shows the grade of the vacant lot.
3-2 ANALYSIS OF SITE
For both proposed and existing construction, the appraiser must
determine the present highest and best use for the site,
disregarding improvements that may exist or are proposed for the
site. This conclusion serves as the basis of comparison for
estimating the market price of the land and discloses the extent
to which the existing or proposed building improvements are
appropriate or inappropriate for the site. This also forms the
basis for selecting comparable land sales.
The appraiser must analyze the site to:
o establish the basis for comparing the market estimates of
sites in the estimate of replacement cost of the property
o determine suitability for the existing or proposed use
Carefully consider the topography, suitability of soil, off-site
improvements, easements, restrictions or encroachments.
Proper topography and site grading can be important elements
in preventing wet basements, damp crawl spaces, erosion of
soils, and overflowing sewage disposal systems. To ensure
proper protection, the appraiser must analyze the
relationship of street grades, floor elevations, and lot
grades. If the foundation or its bearing soils may be
affected by seepage or frost, the dwelling is unacceptable
unless the surface and subsurface water is diverted from the
structures to ensure positive drainage away from the
B. SUITABILITY OF SOIL
Consider the readily observable soil and subsoil conditions
of the site including the type and permeability of the soil,
the location of the water table, surface drainage
conditions, compaction, rock formations and other physical
features that affect the value of the site or its
suitability for development. Also observe the effects of
the adverse features of the adjoining land.
C. OFF-SITE IMPROVEMENTS
Consider the off-site improvements adjoining the subject
property, including street surface, curbs, sidewalks, curb
cuts, driveways, aprons, etc., that are not contained within
the legal boundaries of the site but enhance the market
acceptance and the use and livability of the property. Also
consider these situations:
o Compare the subject property with the immediate
neighborhood to determine the dominant off-site
improvements required by the market. Note any
necessary off-site improvements that are not in
existence or are proposed for the subject property and
adjust for them in the market value.
o Any proposals for installing off-site improvements and
levying assessments by the local governing body in the
near future may affect value. These proposals will
necessitate a commitment condition that requires the
installation of improvements and the payment of the
assessment before or immediately after insurance
D. EASEMENTS, RESTRICTIONS OR ENCROACHMENTS
Consider all easements, restrictions or encroachments and
their impact on the market value of the subject property and
list them on the appraisal. These factors are often
discovered during the survey and title report once the
appraisal has begun. Perform limited due diligence to
verify the existence of these types of significant limiting
factors. Also record these items in the URAR which were
considered in the value estimate.
As a general rule, an encroachment will cause a property to
be ineligible for FHA mortgage insurance. However, there
are exceptions to this rule and further information can be
found by calling the lender. The appraiser should identify
any of these conditions:
o encroachment of a dwelling, garage, another physical
structure or other improvement onto an adjacent
property, right-of-way or utility easement
o encroachment of a dwelling, garage, another physical
structure or improvements on the subject property
o encroachment of a dwelling, garage or another physical
structure into the setback requirement
An encroachment may be acceptable if the adjoining landowner
or the local governing authority provides a perpetual
encroachment easement that is filed in the County Clerk and
Recorder's Office. The Direct Endorsement under-writer will
handle this issue under the General Waiver guidelines.
3-3 ANALYSIS OF PHYSICAL IMPROVEMENTS
Analysis of the physical improvements results in conclusions as
to the desirability, utility and appropriateness of the physical
improvements as factors in determining mortgage risk and the
ultimate estimate of value.
A. GROSS LIVING AREA
Gross Living Area is the total area of finished, above-grade
residential space. It is calculated by measuring the
outside perimeter of the structure and includes only
finished, habitable, above-grade living space. Finished
basements and unfinished attic areas are not included in
total gross living area. The appraiser must match the
measurement techniques used for the subject to the
comparable sales. It is important to apply this measurement
technique and report the building dimensions consistently
because failure to do so can impair the quality of the
B. BASEMENT BEDROOMS, BASEMENT APARTMENTS
As a rule basement space does not count as habitable space.
If the bedroom does not have proper light and ventilation,
the room can not be included in the gross living area. The
following requirements apply to the valuation of below-grade
o The windowsill may not be higher than 44 inches from
o The windowsill must have a net clear opening (width x
height) of at least 24 inches by 36 inches.
o The window should be at ground level; however,
compensating factors may allow less.
In all cases, use reasonable care and judgment. If these
standards are not substantially met, the basement area
cannot be counted as habitable space.
Design is the cohesive element that blends the structural,
functional and decorative elements of a property into a
whole. With good design, the property's parts will be in
harmony (each part with all the other parts). The whole property,
in turn, will be in harmony with its immediate site and environment.
Because good design is recognized and desired, the economic
life of properties and neighborhoods will be extended and
prices will typically exceed those for properties offering
the same number of rooms and area but lacking good design.
This competitive advantage usually continues through the
entire economic life of the property.
The appraiser must recognize this demonstrable price
differential and reflect it in the comparative adjustments
of market data and the final finding of value.
D. CONFORMITY OF PROPERTY TO NEIGHBORHOOD
A residential property with good physical characteristics
may not necessarily be good security for a mortgage loan,
even if it is situated in a good location. The property may
be entirely appropriate at another location, but not in its
actual location. The property may be displeasing when
viewed in relation to its surroundings, and it may not
conform in other respects to the most marketable use in the
particular neighborhood. When determining the effect of
property-neighborhood relationships to marketability,
consider elements other than similarity of physical
Analysis of the Elements of Conformity. Analysis of
Conformity requires consideration of Suitability of Use-
Type, Appropriateness of Functional Characteristics, Harmony
of Design and Relation of Expense of Ownership to Family
o Suitability of Use-Type. The term Use-Type refers to
the use for which a dwelling is designed - single-
family, two-family, etc. In most neighborhoods only
one use-type is suitable. In some neighborhoods,
however, because of their heterogeneous development,
several use-types may be found suitable.
o Appropriateness of Functional Characteristics.
Functional Characteristics refer to the living
facilities provided in a residential property. They
relate to site use and to arrangement, number and size
of rooms. Usually well-defined neighborhood market
preferences are observable.
Nonconformity may exist because of the placement of the
house on the site. Carefully consider any deviation from
the accustomed or accepted placement to determine whether it
adversely affects desirability.
If a site is substantially smaller than the size typical in
the neighborhood, marketability may be limited. The shape
or topography of a particular lot may make it less desirable
than those typical of the area.
The number, arrangement and size of rooms frequently conform
to definite preferences in given neighborhoods. In some
localities where one-story dwellings dominate, a two-story
dwelling may meet considerable market resistance.
o Harmony of Design. Conformity of the exterior design
of a structure with other structures in the immediate
neighborhood is not important unless it contrasts
inharmoniously with them. There may be considerable
variety in the exterior design of dwellings in a
neighborhood and yet each may present a pleasing
appearance when viewed in relation to its surroundings.
On the other hand, a dwelling may be without any
architectural faults and yet clash so violently with
the design of neighboring properties that marketability
may be seriously limited.
o Relation of Ownership Expense to Family Incomes.
Families usually select homes in neighborhoods where
typical occupants have financial means similar to their
own. A home that is too costly for these families to
purchase or maintain will have limited marketability.
3-4 REMAINING ECONOMIC LIFE OF BUILDING IMPROVEMENTS
Because a building is subject to physical deterioration and
obsolescence, its period of usefulness is limited. As a building
deteriorates or becomes obsolete, its ability to serve useful
purposes decreases and eventually ends. This may occur gradually
A. ECONOMIC LIFE VS. PHYSICAL LIFE
o The total physical life of a building is the period
from the time of completion until it is no longer fit
or safe for use or when maintaining the building in a
safe, usable manner is no longer practicable.
o The total economic life of a building is the period of
time from its completion until it can no longer produce
services or net returns over and above a return on the
Economic life can never be longer than the physical life,
but may be and frequently is shorter. A structure that is
sound and in good physical condition with many years of
physical life remaining may have reached the end of its
economic life - if its remaining years of physical
usefulness will not be profitable.
B. ESTIMATION OF REMAINING ECONOMIC LIFE
In predicting the remaining economic life of a building,
consider these factors:
o the economic background of the community or region and
the need for accommodations of the type represented
o the relationship between the property and the immediate
environment the architectural design, style and utility
from a functional point of view and the likelihood of
obsolescence attributable to new inventions, new
materials and changes in tastes
o the trends and rate of change of characteristics of the
neighborhood and their effect on land values
o workmanship, durability of construction and the rate
with which natural forces cause physical deterioration
o the physical condition and probable cost of maintenance
and repair, the maintenance policy of owners and
occupants and the use or abuse to which structures are
C. END OF USEFUL LIFE OF BUILDING IMPROVEMENTS
The useful life of a building has come to an end:
o when the building can no longer produce annual income
or services sufficient to offset maintenance expense,
insurance and taxes to produce returns on the value of
o when rehabilitation is not feasible
The improvements on the lot at the time have no more value
than the amount obtainable from a purchaser who will buy
them and remove them from the site.
3-5 CODE ENFORCEMENT FOR EXISTING PROPERTIES
Local municipalities design local housing code standards;
therefore, enforcement of such housing standards rests with the
local authority. HUD does not have the authority or the
responsibility for enforcing local housing codes except for
mortgages on properties to be insured under Section 221(d)(2)-a
program with mortgage limits at $36,000. Loans insured under
Section 221(d)(2) of the National Housing Act require code
enforcement. The appraiser should contact the lender for further
instructions if the mortgage is to be insured under Section
3-6 GENERAL ACCEPTABILITY CRITERIA FOR FHA-INSURED MORTGAGES
These criteria define standards for existing properties to be
eligible for FHA mortgage insurance. Underwriters bear primary
responsibility for determining eligibility; however, the
appraiser is the on-site representative for the lender and
provides preliminary verification that these standards have been
met. Many of the requirements are technical and beyond the
expertise of the appraiser. They are presented here for
reference, and the appraiser's responsibility is noted by
These criteria form the basis for identifying the deficiencies of
the property that the appraiser must note in the VC form and that
must be addressed by the lender before closing. When examination
of existing construction reveals noncompliance with the General
Acceptability Criteria, an appropriate specific condition to
correct the deficiency is required if correction is feasible. If
correction is not feasible and compliance can be effected only by
major repairs or alterations, the lender will reject the
property. The appraiser is only required to note conditions that
are readily observable.
As-Repaired Appraisal. The appraiser prepares the valuation "as-
repaired" subject to the conditions noted on the VC form. Those
items not listed on the VC will form the basis of comparison to
comparable properties for physical conditions.
Required repairs are limited to those repairs necessary to
preserve the continued marketability of the property and to
protect the health and safety of the occupants.
Deferred Maintenance. Any operable or useful element that will
have reached the end of its useful life within two years should
be replaced. With respect to such deferred maintenance items,
exercise good judgment in requiring repair.
Replacement Because of Age. If an element is functioning well,
do not recommend replacement simply because of its age.
> If the septic system shows evidence of failure because of
age, recommend a specific inspection.
Valuation Conditions. The Valuation Conditions Form and its
protocol help the appraiser evaluate the standards required by
the General Acceptability Criteria. The criteria are described
below. The appraiser must ascertain if the condition called for
exists and mark yes if it does.
> If the observed deficiencies exist, mark "YES" in the
appropriate location on the Valuation Conditions Form,
condition the appraisal on the requirement for repair or
further inspection and prepare the appraisal "as-repaired"
subject to the satisfaction of the condition.
The following guidelines are HUD's General Acceptability Criteria
for existing properties. They provide general guidance for
determining the property's eligibility for FHA mortgage
insurance. For instructions on filling out the VC form, see the
protocol in Appendix D.
A. GENERAL ACCEPTABILITY CRITERIA
These minimum requirements for existing housing apply to
existing buildings and to the sites on which they are
located. The buildings may be:
o row houses
o individual condominium units
These requirements also cover the immediate site environment
for the dwelling, including streets, other services and
facilities associated with the site.
1. Subject Property
The subject property must be adequately identified as a
single, marketable real estate entity. However, a
primary plot with a secondary plot for an appurtenant
garage or for another use contributing to the
marketability of the property will be acceptable if the
two plots are contiguous and comprise a readily
marketable real estate entity.
(3-6) 2. Hazards
The property must be free of all known hazards and
adverse conditions that:
o may affect the health and safety of the occupants
o may affect the structural soundness of the
o may impair the customary use and enjoyment of the
These hazards include toxic chemicals, radioactive
materials, other pollution, hazardous activities,
potential damage from soil or other differential ground
movements, ground water, inadequate surface drainage,
flood, erosion, excessive noise and other hazards on or
> If the property meets the acceptability guidelines
in the VC protocol (Appendix D), quantify the
deficiency's impact in the property valuation.
> If the property does not meet the acceptability
guidelines, note the appropriate hazard in VC-1 and
In the appraisal of new and proposed construction,
special conditions may exist or arise during
construction that were unforeseen and necessitate
precautionary or hazard mitigation measures. HUD will
require corrective work to mitigate potential adverse
effects from the special conditions as necessary.
Special conditions include:
o rock formations
o unstable soils or slopes
o high ground water levels
o other conditions that may have a negative effect
on the property value
The builder must ensure proper design, construction and
satisfactory performance when any of these issues are
For specific instructions about noting this information
in the VC form, see VC-1 in the protocol (Appendix D).
3. Soil Contamination
a. Septic and Sewage
If a septic system is part of the subject
property, the appraiser must determine whether the
area is free of conditions that adversely affect
the operation of the system. Consider the
(3-6) o the type of system
o depth to ground water
o soil permeability
o the type of soil to a depth several feet
below the surface
If in doubt about the operation of sewage disposal
systems in the neighborhood, mark "YES" in VC-2,
condition the appraisal on further inspection and
prepare the appraisal "as-repaired" subject to
satisfaction of the condition.
The lender will contact the local health authority
or a professional to determine the viability of
b. Other Soil Contaminants
The following conditions may indicate unacceptable
levels of soil contamination: pools of liquid,
pits, ponds, lagoons, stressed vegetation, stained
soils or pavement, drums or odors.
> If there is evidence of hazardous substances
in the soil, require further inspection. Mark
"YES" in VC-2, condition the appraisal on
further inspection and prepare the appraisal
"as-repaired" subject to the satisfaction of
c. Underground Storage Tanks
During the site inspection, the appraiser must
walk the property and search for readily
observable evidence of underground storage tanks.
Evidence would include fill pipes, pumps,
ventilation caps, etc.
> If there is evidence of underground storage
tanks, require further analysis. Mark "YES"
in VC-2, condition the appraisal on that
requirement and prepare the appraisal "as-
repaired" subject to the satisfaction of the
The site must be graded to provide positive drainage
away from the perimeter walls of the dwelling and to
prevent standing water on the site. Signs of
inadequate draining include standing water proximate to
the structure and no mitigation measures such as
gutters or downspouts.
For specific instructions about noting this information
in the VC form, see VC-3 in the protocol (Appendix D).
> If drainage is inadequate and needs improvement,
mark "YES" in VC-3, make a repair requirement,
condition the appraisal on that requirement and
prepare the appraisal "as-repaired" subject to the
satisfaction of the condition.
(3-6)5. Water Supply And Sewage Systems
Each living unit must contain the following:
o domestic hot water
o a continuing and sufficient supply of potable
water under adequate pressure and of appropriate
quality for all household uses
o sanitary facilities and a safe method of sewage
Connection must be made to a public water/sewer system
or a community water/sewer system, if connection costs
to the public or community system are reasonable (3% or
less of the estimated value of the property). If
connection costs exceed 3%, the existing on-site
systems will be acceptable provided they are
functioning properly and meet the requirements of the
local health department.
> If the correction is feasible, require connection.
Mark "YES" in VC-4, condition the appraisal on the
requirement and prepare the appraisal "as repaired"
subject to the satisfaction of the condition.
a. Individual Water Supply and Sewage Disposal
If water and sewer systems are not connected to
public systems, the water well and/or septic system
must meet the requirements of the local health
authority with jurisdiction. If the local
authority does not have specific requirements, the
maximum contaminant levels established by the
Environmental Protection Agency (EPA) will apply.
If the authority is unable to perform the water
quality analysis in a timely manner, a private
commercial testing laboratory or a licensed
sanitary engineer acceptable to the authority may
take and test water samples.
o Each living unit must be provided with a sewage
disposal system that is adequate to dispose of
all domestic wastes and does not create a
nuisance or in any way endanger the public
o Individual pit privies are permitted where such
facilities are customary and are the only
feasible means of waste disposal and, if they
are installed in accordance with the
recommendations of the local Department of
> If there is a well or septic system on the
property, mark "YES" in VC4, condition the
appraisal on further inspection by the lender
and prepare the appraisal "as-repaired" subject
to satisfaction of the condition.
A domestic well must be a minimum of 50 feet from a
septic tank, 100 feet from the septic tank's drain
field and a minimum of 10 feet from any property
> Clearly show the location of private wells and
septic systems on the site sketch and note the
distance between the two.
b. Unacceptable Conditions
The following water well conditions are
unacceptable and must be noted in VC-4:
o mechanical chlorinators
o water flow that decreases noticeably when
simultaneously running water in several
plumbing fixtures (the well may not be able to
provide a continuous, adequate supply of
o properties served by dug wells unless a
complete survey conducted by an engineer was
delivered to the lender and subsequently given
to the appraiser
o properties served by springs, lakes, rivers or
To be considered acceptable, the engineer's survey
must include these items:
o a health report with no qualifications
o indication that an inoperative well was cased,
sealed and capped with concrete to a depth of
at least 20 feet
o a pump test indicating a flow of at least 3-5
gallons per minute supply for an existing
well, and 5 gallons per minute for a new well
o an acceptable septic report
o no indication of exposure to environmental
contamination, mechanical chlorination or
anything else that adversely affects health
> If these requirements for individual wells or
septic tanks are not met, note them in VC-4 and
prepare the appraisal "as-repaired" subject to
The lender will require the engineer's follow-up
report and will arrange for any
required corrective measures.
6. Wood Structural Components: Termites
Termites can cause serious problems in the wood
structural components of a house and may go undetected
for a long period of time. FHA requires maximum
assurances that a home is free of any infestation. A
pest inspection is always required for:
(3-6) o any structure that is ground level
o any structure where the wood touches ground
Structures in a geographic area with no active termite
infestation may not require a pest inspection.
However, the appraiser must always note:
o any infestation
o any damage resulting from previous infestation
o whether damage from infestation has been repaired
or is in need of repair
Observe all areas of the property that have potential
for termite infestation, including the bottoms of
exterior doors and frames, and wood siding in contact
with the ground and crawl spaces. Examine mud tunnels
running from the ground up the side of the house for
possible evidence of termite infestation.
> If there is any evidence of termite infestation,
require an inspection by a reputable licensed
termite company. Mark "YES" in VC-5, condition the
appraisal on the requirement and prepare the
appraisal "as-repaired" subject to the satisfaction
of the condition.
For specific instructions on noting this information in
the VC Form, see VC-5 in the protocol (Appendix D).
Each property must be provided with safe and adequate
pedestrian and vehicular access from a public or
private street. Private streets must be protected by
permanent recorded easements and have joint maintenance
agreements or be owned and maintained by a HOA.
All streets must provide all-weather access to all
buildings for essential and emergency use, including
access for deliveries, service, maintenance and fire
equipment. FHA defines all-weather surface as a road
surface over which emergency vehicles can pass in all
types of weather. Streets must either be:
o dedicated to public use and maintenance
o retained as private streets protected by permanent
recorded easements (when approved by HUD)
> If these requirements are not met, mark "YES" in
VC-6 and prepare the appraisal "as-repaired"
subject to the correction of this deficiency.
(3-6) 8. Defective Conditions
A property with defective conditions is unacceptable
until the defects or conditions have been remedied and
the probability of further damage eliminated.
Defective conditions include:
o defective construction
o poor workmanship
o evidence of continuing settlement
o excessive dampness
o other readily observable conditions that impair
the safety, sanitation or structural soundness of
The items outlined in VC-7: Structural Conditions, are
meant to alert the appraiser and the lender to the
possibility of defective conditions. These items are
readily identifiable characteristics that could
indicate one of the defective conditions.
Natural ventilation of structural space - such as
attics and crawl spaces - must be provided to reduce
the effect of excess heat and moisture that are
conducive to decay and deterioration of the structure.
All attics must have ventilation to allow moisture and
excessive heat to escape. The appraiser must check the
attic areas to determine whether the ventilation is
> If ventilation is not provided, make a condition
for repair, mark "YES" in VC7 and prepare the
appraisal 'as-repaired" subject to the satisfaction
of the condition.
All foundations must be adequate to withstand all
normal loads imposed. Stone and brick foundations are
acceptable if they are in good condition. The
appraiser must review the conditions in VC-8 for
evidence of conditions that could indicate safety or
structural deficiencies that may require repair.
> If the foundation is deficient, mark "YES" in VC-8
and prepare the appraisal "as-repaired" subject to
the repair of the deficiencies.
11. Crawl Space
To ensure against conditions that could cause the
property to deteriorate and seriously affect the
marketability of the property, it is required that:
(3-6) o There must be adequate access to the crawl space;
the appraiser must be able to access the crawl
space for inspection. Access is defined as ability
to visually examine all areas the crawl space.
Specifically, the minimum distance is 18 inches.
o The floor joists must be sufficiently above ground
level to provide access for maintaining and
repairing ductwork and plumbing.
o The crawl space must be clear of all debris and
trash and must be properly vented.
o The crawl space must not be excessively damp and
must not have any water ponding.
> If these requirements are not met, mark 'YES" in
VC-8 and prepare the appraisal "as-repaired"
subject to repair of the deficiency.
The covering must prevent moisture from entering and
must provide reasonable future utility, durability and
economy of maintenance. When re-roofing is needed for
a defective roof that has three layers of shingles, all
old shingles must be removed before re-roofing. The
details of the process are provided in the protocol.
The appraiser must observe the roof to determine
whether the deficiencies present a health and safety
hazard or do not allow for reasonable future utility.
The appraiser is only required to note readily
> If the roof is deficient, mark "YES" in VC-9 and
prepare the appraisal "as repaired" subject to the
repair of the deficiency.
Flat roofs typically have shorter life spans and
therefore require inspection.
> If there is a flat roof mark "YES" in VC-9 and
prepare the appraisal "as repaired" subject to
13. Mechanical Systems
These are the requirements for mechanical systems:
o must be safe to operate
o must be protected from destructive elements
o must have reasonable future utility, durability
o must have adequate capacity and quality
(3-6) The appraiser must observe the systems in VC-10 and
determine if any of the conditions do not meet the
above stated criteria.
> If the systems require repair, mark "YES' in VC-10,
condition the appraisal on the repair or further
inspection and prepare the appraisal "as-repaired"
subject to the satisfaction of the condition.
> If systems could not be operated due to weather
conditions, explain that in VC-10, condition the
appraisal on assumed functionality, and make a note
of this condition on the Homebuyer Summary - Part 3
of the Comprehensive Valuation Package.
Heating must be adequate for healthful and comfortable
o Dwellings that use wood-burning stoves or solar
systems as a primary heat source must have
permanently installed conventional heating systems
that can maintain a temperature of at least 50
degrees F. in areas containing plumbing systems.
These systems must be installed in accordance with
the manufacturer's recommendations.
o Properties with electric heating sources must have
an acceptable electric service that meets the
general requirements of the local municipal
o All water heaters must have a non-adjustable
temperature and pressure-relief valve. If the
water heater is in the garage, it must comply with
local building codes.
o All non-conventional heating systems - space
heaters and others - must comply with local
Solar energy systems are discussed in Appendix B.
Electricity must be available for lighting and for
equipment used in the living unit. Refer to the
specific instructions in the protocol (Appendix D) for
determining adequate electricity.
16. Other Health And Safety Deficiencies
The appraiser must note and make a repair requirement
for any health or safety deficiencies as they relate to
the subject property, including:
o broken windows, doors or steps
o inadequate or blocked doors
o steps without a handrail
The appraiser must operate a representative number of
windows, interior doors and all exterior and garage
doors, as well as verify that the electric garage door
operator will reverse or stop when met with resistance
If conditions exist that require repair, mark "YES" in
VC-11 and prepare the appraisal "as-repaired" subject
to the satisfaction of the condition.
17. Lead-Based Paint And Other Hazards
If the home was built before 1978, the appraiser should
note the condition and location of all defective paint
in the home. Inspect all interior and exterior
surfaces - wars, stairs, deck porch, railing, windows
and doors - for defective paint (chipping, flaking or
peeling). Exterior surfaces include those surfaces on
fences, detached garages, storage sheds and other
outbuildings and appurtenant structures.
> If there is evidence of defective paint surfaces,
condition the appraisal on their repair, mark "YES"
in VC-12 and prepare the appraisal "as-repaired"
subject to the satisfaction of the condition.
For condominium units, the appraiser needs to inspect
only the exterior surfaces and appurtenant structures
of the unit being appraised and address the overall
condition, maintenance and appearance of the
> If the condominium project was built before 1978
and shows signs of excessive deferred maintenance
or defective paint, mark "YES" in VC-13 and prepare
the appraisal "as-repaired" subject to the
satisfaction of the condition.
B. OTHER CRITERIA
There are other eligibility criteria that are not part of
the VC form. The lender bears primary responsibility for
these; however, they are provided here so that the appraiser
may reference them if questions arise during the property
1. Party Or Lot Line Wall
There must be adequate space based upon market
acceptability between buildings to permit maintenance
of the exterior walls for detached homes.
2. Service And Facilities
Trespass. Each living unit must have the capacity to
be maintained individually without trespassing on
Utilities. Utilities must be independent for each
living unit except that common services - water, sewer,
gas and electricity - may be provided for living units
under a single mortgage or ownership.
o Each unit must have separate utility service shut-
(3-6) o Each unit must have individual meters.
o For living units under separate ownership, common
utility services may be provided from the main
service to the building line when protected by an
easement or covenant and maintenance agreement
acceptable to HUD.
o Individual utilities serving a unit must not pass
over, under or through another unit, unless:
- Provisions have been made for repairing and
maintaining those utilities without trespassing
on adjoining properties.
- An easement of covenant is made for permanent
right of access for maintenance and repair of
o If a single drain line in the building serves more
than one unit, the building drain clean-outs must
be accessible from the exterior.
o Other facilities must be independent for each
living unit, except common services, such as
laundry and storage space or heating, may be
provided for two-to-four-living-unit buildings
under a single mortgage.
Dedication. Utilities must be located on easements
that have been permanently dedicated to the local
government or appropriate public utility body. This
information must be recorded on the deed record so that
the utility services match the easement.
3. Non-Residential Use Design Limitations
A qualified property must be predominantly residential
in use and appearance. Any nonresidential use of the
property must be subordinate to its residential use,
character and appearance. A property, any portion of
which is designed or used for nonresidential purposes,
is eligible only if the type or extent of the
nonresidential use does not impair and/or remove the
property's residential character and appearance.
4. Access Onto Property
Access to the living unit must be provided without
passing through any other living unit. Access to the
rear yard must be provided without passing through any
other living unit. For a row-type dwelling, the access
may be by an alley, easement or passage through the
(3-6)5. Space Requirements
Each living unit must have the space necessary to
ensure suitable living, sleeping, cooking and dining
accommodations and sanitation facilities.
6. Bedroom Egress
All bedrooms must have adequate egress to the exterior
of the home. If an enclosed patio (solid walls) covers
the bedroom window, it is possible that the bedroom
won't qualify as a habitable bedroom. Security bars
are acceptable if they comply with local fire codes.
Occupants of a bedroom must be able to get outside the
home if there is a fire.
7. Energy Efficiency
For new and proposed construction and properties less
than one year old, all detached one- and two-family
dwellings and one-family townhouses not more than three
stories in height must comply with the CABO Model
Energy Code, 1992 Edition, Residential Buildings,
except for sections 101.3.1, 101.3.2, 104 and 105.
These sections remain:
o Section 126.96.36.199, Historic Buildings
o The Appendix
o HUD Intermediate MPS Supplement 4930.2 Solar
Heating and Domestic Hot Water Systems, 1989
Valuation procedures for solar energy systems can be
found in Appendix B.3.
C. CONDITIONS NOT REQUIRING REPAIRS
Conditions that do not ordinarily require repair include any
surface treatment, beautification or adornment not required
for the preservation of the property.
These are some examples:
o A wood floor's finish that has worn off to expose the
bare wood must be sanded and refinished. However, a
wood floor that has darkened with age but has an
acceptable finish does not need polishing or
o Peeling interior paint and broken or seriously cracked
plaster or sheetrock require repair and repainting, but
paint that is adequate though not fresh does not need
to be redone.
o Missing shrubbery or dead grass on an existing
property does not need to be replaced.
o Cleaning or removing carpets is required only when
they are so badly soiled that they affect the
livability and/or marketability of the property.
o Installing paved driveways or aprons should not be
required if there is an otherwise acceptable surface.
o Installing curbs, gutters or partial street paving is
not required unless assessment for the same is
o Complete replacement of tile floors is not necessary
if some tiles do not match, etc.
Avoid unnecessary requirements because they increase housing
cost without adding any basic amenities to the property.
D. REPAIR CONDITIONS FOR NEW/PROPOSED CONSTRUCTION
The appraiser must develop the cost approach for new or
proposed construction and the normal site development costs
must be included in the lot value. Where unusual cuts,
fills, retaining walls, etc. are necessary to prepare the
site for the proposed building improvements, estimate the
amount by which the cost of the work exceeds the cost of
preparing typical sites for similar structures from the
Marshall and Swift Cost Handbook. This estimate supplements
the estimate of the replacement cost of building
o When estimating the market price of a site with unusual
site characteristics that must be corrected, assume
that the site is in the condition that will exist after
the corrective work is completed. Disregard the cost
of the treatment, but use the value of the improved
site in the estimate of the replacement cost of the
o Use the supplemental cost estimate to:
- determine the extent to which the replacement cost
of the property will exceed the cost of a
substitute property produced by constructing
identical improvements on a typical site
- indicate the extent to which value may be less
than the replacement cost for that part in excess
of the cost of preparing the typical site
o Do not include the cost of treating unusual site
characteristics in the estimate of replacement cost of
building improvements. It is necessary to avoid
including both the effect of site treatment and the
cost of the work in the estimate of replacement cost of