Recently it has been asked by a lender, why an appraisal for the FHA would cost more than an appraisal for conventional financing.

In the past (1970’s, 1980’s and early 1990’s) an FHA appraisal was markedly different than a conventional appraisal. There was a glossary of terms and definitions that the FHA supplied the appraiser. Each of the items were to be considered by the appraiser in conducting an FHA appraisal. The list included the width of the road access to the property; the width and breadth of the scuttle hole into the attic; the size and orientation of the pressure release tube on the hot water heater; depth (or R-factor) of the attic insulation; was there a sump pump…….. The list was extensive. We appraisers were very trained in the need to conduct an inspection of all these things. In fact, the FHA had every appraiser on their list annually attend a seminar covering the details.

Then in 1994 or 1995, the banking lobby successfully got the FHA to drop all that. Also, the banking lobby got the FHA to allow the lender to choose the appraiser, whereas the FHA had always done the appraiser selection in the past. That was when the problems really began. Prior to that date I, as and MAI and SRA, was doing about 12 FHA appraisals per month. Also, I was assigned, by the FHA, to a particular area of town to watch for some types of fraud that had been occurring. Since the banks took over the selection of the appraiser I have done very few FHA appraisals. It seems the lenders did not like the appraisers following the FHA rules. That interfered with the lenders closing loans. Well, if you have been in the business long enough, you’ll remember the problems the FHA had with defaults during the middle 1990’s. This was a direct result of letting the proverbial fox into the proverbial hen-house.

Today there are still extra things the FHA asks the appraiser to look at when conducting an appraisal. Also, there is the greater risk of doing appraisal work on behalf of an insurer, like the FHA. Some lenders recognize the difference. Some lenders say there is no difference. The ones who say there is no difference are not paying attention. That could cause problems.

With the rise in FHA participation in the marketplace, there is a need for the appraiser and lender to pay attention to what is being done. I am hopping the industry has grown weary of the cost and hassles of the fraud that has occurred in the past.

There is plenty of business to do without the fraud.

Ralph Olsen, IFA appraiser

Pacific West Appraisal Services, Inc.

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