Beginning April 1, 2009 FHA (Federal Housing Administration) has added to its appraisal guidelines. With 67% of homes purchased in the Reno-Sparks area in the first quarter of 2009 utilizing FHA financing, there are some key things buyers should know about these changes.
FHA appraisers are required to include a Market Conditions Addendum stating whether the market is declining or stable etc. Appraisers must now include comps that only go back 90 days. They used to go back 6 months. Typically appraisals are done with sold comparables, but now FHA appraisals need to include 2 active or pending sales as well. This is due to the fact that in some cases active listings are priced below the recently closed comparables.
In addition, appraisers will have to adjust active listings to reflect the list-to-sales price ratios of comparable sales. FHA is also looking for the appraiser to include the pricing history of comparables, showing price reductions. If there are known or reported seller concession (closing costs etc.) the appraiser needs to note that.
Lastly, the appraiser will have to calculate the Absorption Rate on the subject property. This shows the number of months of active inventory given the rate of sale in that neighborhood.
Based on this, my recommendation to buyers would be to make sure that you buyer’s agent is preparing a current market analysis on all properties you are considering writing an offer on, going back no more than 90 days. Have your agent calculate the absorption rate as well. Your purchase could be delayed if your offer is over the appraised value of the home.