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FHA To Conventional Conversion?

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ValueArtist

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Junior Member
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Dec 12, 2010
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Certified Residential Appraiser
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California
Hello Real Estate Appraisers!

I have a client requesting that I convert a recent FHA assignment that I completed to a Conventional loan appraisal, actually, they are inquiring about the feasibility of me doing that. My contention with doing that is that there are issues (or potential issues) that were observed in the FHA scope of work; I am aware of these issues. Of course the original report was completed subject to inspections and repairs- value is "subject to". I was hoping to get some input on this request and circumstance from what you foresee, have experienced, or how you would handle this request?
 

ValueArtist

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Junior Member
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Certified Residential Appraiser
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California
Oh, I didn't mention, the reasoning for the conversion is that the seller refuses to make any repairs or to have any inspections completed. So the buyer is trying to switch to a Conventional loan.
 

ValueArtist

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Certified Residential Appraiser
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California
This was a good answer, and thank you!

"I'd agree with Verne Herbert's approach, given that the lender was originally named as an intended user and the lender requirements for scope of work and reporting should be a subset of the FHA requirements. I think if you want to do a head and shoulders inspection, test appliances, check the crawl space and all the other extra things one notes in an FHA appraisal, yet for a lender client intended user, then I say there is no problem.

The scope of work should set minimum standards and methods for credible assignment results, not the maximum standards. The appraisal and the reporting of the appraisal are two different things. The report must provide the necessary information so as not to be misleading for the intended user, and the appraisal of the property wouldn't be impacted by removing FHA as an intended user (if you saw a leak in the attic under FHA inspection guidelines, then the leak still exists, the exhibit is still in the appraisal and the appraisal is impacted just the same - what is known is known).

Provided the original lender (intended user) doesn't change, then one should be able to remove the case# and other information in the appraisal where you are addressing matters and exhibits specifically to FHA. You would use the same exhibits, but now you are providing these to the lender for the conventional loan - they don't get off the hook for conditions just because they eliminated FHA as the intended user.

Key factors: Same lender/intended user; new user is a subset of prior intended users; the new scope of work is a subset of the the prior scope of work, the appraisal/ appraised value doesn't change, nor the list of conditions, nor the effective date, nor the exhibits of items showing a conditions previously noted.

In such a case, I would add something like this at the end of the original addendum.

"Addendum dated xx/xx/xxxxx, which is subsequent to the original report issued on xx/xx/xxxx, per original lender request on xx/xx/xxxx to remove FHA as intended user, remove FHA case number and specific references made to FHA so the report may be used for a conventional loan with the original lender"

"The FHA case number and references to FHA were removed in the report; however, all condition exhibits, appraised value and the effective date have not changed. The removal of FHA as an intended user does not make the scope of work covered initially inadequate but rather superadequate to a conventional assignment. Since the inspections were made initially, the reported results, exhibits showing adverse conditions, and the appraised value has not changed even if such extra diligence and scope of work is not required for the lender or in its reporting""
 

Tim Hicks (Texas)

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Texas
It is a new assignment. I would not change the original. You can do a new report with the same effective date.
 

Mike Garrett RAA

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Colorado
Minimal work to remove the FHA references. It is a new assignment and should have a new date of report and signature. I have no problem going from FHA or VA to conventional because the protocol and inspections are actually higher.. Be sure you indicate you did the appraisal for an FHA insured loan (prior appraisal).
 

nottrav

Senior Member
Joined
May 2, 2011
Professional Status
Licensed Appraiser
State
California
I do it this way. $150 if effective date can stay the same. Send over new order with same effective date.

Or send over new order with new effective date and $375 fee.

Edit: with the subject to v. As is now, I'd just charge full pop and tell them why. All new comps.

$150 is to just change out the order number and create/copy/add to workfile.
 
Last edited:

nottrav

Senior Member
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May 2, 2011
Professional Status
Licensed Appraiser
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California
In my mind. I did report subject to. So I chose c4/3 comps. When I do as-is. I choose c5/c4- comps.

Subject to, as-is comps are probably different or at least a 100% new analysis. Therefore charge full freight.
 

Tom D

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May 22, 2015
Professional Status
Certified Residential Appraiser
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Pennsylvania
you can do a reduced fee, but it seems you will need new comps so charge accordingly. depends on how much you like this client. i would go with the same inspection date, and a later signature date because of the comp changes. get a new order from the client.
 

Terrel L. Shields

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Certified General Appraiser
State
Arkansas
If the repairs are very extensive, then the buyer should find a better property.
 
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