203k Question.

[Eric C]

I have a question.....

I did a 203K inspection expecting to see some needed repairs. But the property is actually in average condition. It might not be updated but its in average condition....... The only thing needed to meet FHA guidelines was to turn on utilities.

A contractors bid was provided and EVERYTHING on this bid was cosmetic repairs....new paint, new floors, new kitchen, new bathrooms, etc etc...None of these things have to be "replaced" in order to make property liveable....The property is fine how it is.

I made a note of all this on the report and made the appraisal subject to "utilties" only.

The client says that I MUST make the appraisal subject to whats on the contractors bid........

I was under the impression that 203K loans were only for required repairs to bring properties up to liveable condition. Am I wrong? Can a 203K loan be made to "remodel/upgrade" a property?

Was I supposed to appraised the subject property as "upgraded & remodeled" therefore making it subject to "contractors bid"?......meaning I should have only used "upgraded/remodeled" comparables? I mean how would I even know what quality of upgrades they will do?

 

[John LaBelle]

I suggest you take a look at this site: http://portal.HUD.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/203kabou

Yes you can use an FHA 203K to modernize a dated home. In addition to the contractors quote, you should receive some sort of plans for what they will be doing and a materials list. The appraisal should be subject to completion of these improvements.

 

[Eric C]

I suggest you take a look at this site: http://portal.HUD.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/203kabou

Yes you can use an FHA 203K to modernize a dated home. In addition to the contractors quote, you should receive some sort of plans for what they will be doing and a materials list. The appraisal should be subject to completion of these improvements.

Thank you John. Now I gotta see how I can update the appraisal to make it subject to the contractors bid.

 

[VAppraisals]

I have a question.....

I did a 203K inspection expecting to see some needed repairs. But the property is actually in average condition. It might not be updated but its in average condition....... The only thing needed to meet FHA guidelines was to turn on utilities.

A contractors bid was provided and EVERYTHING on this bid was cosmetic repairs....new paint, new floors, new kitchen, new bathrooms, etc etc...None of these things have to be "replaced" in order to make property liveable....The property is fine how it is.

I made a note of all this on the report and made the appraisal subject to "utilties" only.

The client says that I MUST make the appraisal subject to whats on the contractors bid........

I was under the impression that 203K loans were only for required repairs to bring properties up to liveable condition. Am I wrong? Can a 203K loan be made to "remodel/upgrade" a property?

Was I supposed to appraised the subject property as "upgraded & remodeled" therefore making it subject to "contractors bid"?......meaning I should have only used "upgraded/remodeled" comparables? I mean how would I even know what quality of upgrades they will do?

Dont take this the wrong way, but you should be very careful.. I complete 203K's all the time, and can tell you are not familiar with them...

A 203K loan can be originated for any number of reasons, I just finished one the other day where the subject was in very good recently updated condition, and the proposed improvements is an addition that doubled the GLA. You need to review and attach the HUD wirte up (bid) to the report, the report is "subject to" the completion of proposed improvements and your comparables and opinion of market value should reflect the "subject to" condition..

Also, you must include within the addendum the "as is" value of the home, comparables for the "as is" value are not required on the sales grid, just keep them in your work file..

 

[CANative]

Also, you must include within the addendum the "as is" value of the home,

Only if the lender specifically requests an as-is value... in advance.

 

[JSmith43]

The link John L posted above gives a good overview of the regular 203K program. I don't think it covers the 203K Streamline program. It is also helpful to know the parameters of the streamline 203K, which has cost limits as well as limited purposes. The streamline version does not require a HUD blessed consultant's work write up, but may have one from time to time (usually not due to extra expense).

You have to supplement that basic information with the latest 203K related mortgagee letters: http://portal.HUD.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/203kltrs

At that point, you will know the basic HUD parameters for a 203K loan-regular or streamline.

Investors offering these 203K loan programs are subject to HUD guidelines, but may demand more stringent conditions than HUD guidelines. The LO may or may not have a clue, which adds to the mystery. If I do a 203K appraisal, I want to know which investor it is going to so I can look up their specific program guidelines. Your lender client may possibly furnish you with supplemental guidelines for the investor that will take delivery of the loan.

Bottom line, the OP accidentally stepped into a situation that was beyond his experience level & could get a USPAP hammering. It has happened to all of us to one degree or another at some point. Appraising these loans and originating them should be considered a specialty.

 

[Eric C]

I can't say I have done a lot of these but I have done some and I'm still learning. I definately need to be more careful. thanks for the replies.

 

[Motown Matt]

Just keep in mind that you are appraising the subject AS-IF all repairs are completed, not AS-IS in its current state. Everything you report on page 1, which should match your grid should be AS-IF the repairs were completed. Example - 203k remodels kitchen and bath(s) that will bring the condition to C3, your report should state the subject in C3 state, while clearly stating in necessary places "after 203k repairs are completed...". 203k repairs can sometimes be "wish" lists rather than "needs". Of course you are also to pick comps that are similar to the subject AFTER repairs (C3 in my example), because the report (and value) are conditional to the repairs being completed.

You need to check the box in the reconciliation on Pg 2 that states: "subject to the following repairs or alterations on the basis of a hypothetical condition that the repairs or alterations have been completed" and then, on the lines directly below, state "Appraisal subject to completion of 203K repairs and/or renovations, performed by zzz company, including: (list of repairs and $ amount). See attached addenda for contractor quote supplied to appraiser."

I also put that exact verbiage into the section on page 1 "Describe the condition of the property..."

That's how I do it.

 

[Eric C]

Just keep in mind that you are appraising the subject AS-IF all repairs are completed, not AS-IS in its current state. Everything you report on page 1, which should match your grid should be AS-IF the repairs were completed. Example - 203k remodels kitchen and bath(s) that will bring the condition to C3, your report should state the subject in C3 state, while clearly stating in necessary places "after 203k repairs are completed...". 203k repairs can sometimes be "wish" lists rather than "needs". Of course you are also to pick comps that are similar to the subject AFTER repairs (C3 in my example), because the report (and value) are conditional to the repairs being completed.

You need to check the box in the reconciliation on Pg 2 that states: "subject to the following repairs or alterations on the basis of a hypothetical condition that the repairs or alterations have been completed" and then, on the lines directly below, state "Appraisal subject to completion of 203K repairs and/or renovations, performed by zzz company, including: (list of repairs and $ amount). See attached addenda for contractor quote supplied to appraiser."

I also put that exact verbiage into the section on page 1 "Describe the condition of the property..."

That's how I do it.

Thank you Matt.

This whole time I thought these loans were only for repairs. Now I see they could be for remodeling also.... the report submitted basically has an "as is" value since there were no repairs needed.. How would you correct it to a "subject to...the upgrades" with new comps and a new appraised value? How would you handle this?

 

[Motown Matt]

Thank you Matt.

This whole time I thought these loans were only for repairs. Now I see they could be for remodeling also.... the report submitted basically has an "as is" value since there were no repairs needed.. How would you correct it to a "subject to...the upgrades" with new comps and a new appraised value? How would you handle this?

Basically may have a LOT of work to do to "fix" this. Again, your entire report should be done as-if the repairs are assumed completed, including the sales comparison grid. All of the check boxes in the improvements section should follow this, as well as the condition section, ect. Just "pretend" all of the repairs are done, how would you do the report? You'd pick comps that are similar to the "repaired" subject, not the current state. EVERYTHING in the report should reflect the subject as-repaired/renovated, with proper narration stating clearly in multiple places (particularly the reconciliation and pg 1 condition field) 1) what the repairs will be and 2) that the report is subject to completion of the repairs. Re-read my last post carefully, it's pretty much everything you need to know.

Good luck. Pretty easy report, really, just a few extra paragraphs, check the correct box in reconciliation, and add the contractor's quote to the report for back-up. Usually I type out the full list of repairs in the report in the condition section and copy/paste it into the reconciliation section, unless the list is too complicated or tedious to do reasonably, in which case I simply say the $ amount of the repairs and to see the attached quote for the details. I might simply say "renovated kitchen" instead of listing every component that's being replaced in the quote, for example.