Proposed Construction

[Non Sequitur]

I'm at a loss, searched the recent Fannie Selling guide and I struck out.

What are the required exhibits for proposed construction other than typical 1004 report requirements? Is it a requirement to attach plans/specs and materials/cost breakdowns? I always have, but got called out today and I can't support attaching/including the documents with specific Fannie guidelines.

 

[gregb]

Some of the links below could further delineate the fannie guidelines: https://www.fanniemae.com/content/guide/selling/b4/1.2/03.html

Requirements for New or Proposed Construction
When the property securing the mortgage is new or proposed construction, the appraisal may be based on either plans and specifications or an existing model home. The table below describes requirements related to properties that are new or proposed construction that are not complete when the mortgage is delivered to Fannie Mae.

✓ Requirements for New or Proposed Construction
Mortgages may be delivered before postponed items are complete; however, the postponed improvements must be completed within 180 days of the date of the mortgage note. Acceptable postponed items include items that:

• are part of the sales contract (third-party contracts are not permissible);
  
  
• are postponed for a valid reason, such as inclement weather or a shortage of building materials; and
  
  
• do not affect the ability to obtain an occupancy permit.
  

A certification of completion must be obtained to verify the work was completed and must:

• be completed by the appraiser,
  
  
• state that the improvements were completed in accordance with the requirements and conditions in the original appraisal report, and
  
  
• be accompanied by photographs of the completed improvements.
  

The cost of completing improvements must not represent more than 10% of the “as completed” appraised value of the property.

Lenders must establish a completion escrow for the postponed improvements, by withholding from the purchase proceeds funds equal to 120% of the estimated cost for completing the improvements. However, if the contractor or builder offers a guaranteed fixed-price contract for completion of the improvements, the funds in the completion escrow only need to equal the full amount of the contract price.

Lenders and borrowers must execute an escrow agreement that states how the escrow account will be managed and how funds from the escrow account will be disbursed.

The completion escrow may not adversely affect the mortgage insurance or title insurance.

Once a certificate of completion is obtained, the lender must release the final draw from the escrow account, which should include any funds in excess of the amount needed to pay for completion of the postponed items.

Lenders must obtain a final title report, which must not show any outstanding mechanic’s liens, take any exceptions to the postponed improvements, or take any exceptions to the escrow agreement. If the final title report is issued before the completion of the improvements, lenders must obtain an endorsement to the title policy that ensures the priority of Fannie Mae’s lien.

 

[Tim The Enchanter]

I have not done proposed construction lately. Have done some "fun" ones in the past.
Used to include photos or scans of the elevations etc from the architect plans, scan in cost breakdown, and material specs.
All this needs to be supplied to you by the client or property owner. Pics of whatever actually exists, you take.
Normally I would draw my sketch from the plans. GLA calculated never matched what the architect had on the plans, but was in the ball park.

 

[TRESinc]

as far as i know there are no requirements to include plans, specs, breakdowns, etc. but there is nothing that prohibits an appraiser from including them either. i always include the cost breakdown/list of materials so that anyone who views my report will see what it was based on.

 

[Non Sequitur]

Thanks gregb, Lee in L.A., and TRSinc.

The issue came up during lunch with someone who works at a local bank. They have been getting push back from the production side. Supposedly the documents the appraisal department insists on having before moving forward aren't required by other local competitors resulting in a competitive disadvantage.

This is all I can dig up:

Per Fannie Mae Selling Guide dated 09/04/2018:

When searching “proposed construction” the selling guide mostly references loans products, nothing specifically appraisal report related. A vague reference is made on page 546:

“When the property securing the mortgage is new or proposed construction, the appraisal may be based on either plans and specifications or an existing model home. The table below describes requirements related to properties that are new or proposed construction that are not complete when the mortgage is delivered to Fannie Mae.”

When searching “new construction” page 269:

“For new construction, the lender is responsible for compliance with Fannie Mae’s standard appraisal requirements, specifically B4-1.2-03, Requirements for Postponed Improvements (02/27/ 2018) and, B4-1.4-01, Factory-Built Housing: Manufactured Housing (06/05/2018) for appraisals based on plans and specifications. This will ensure site improvements that are not attached to the home, such as detached garages, are complete.” The requirements referenced don’t require anything specific.

I can’t find any other source material regarding what exhibits should be included in an appraisal report or what a lender/client should forward to the appraiser.

IMO there are two issues: On the lender side in terms of documentation, what is reasonable? Without plans/specs and material with cost breakdowns, how would you expect an appraiser to determine/support quality and other relevant physical characteristics? On the appraiser’s side in terms of the report, how do you determine/support quality and physical characteristics? And what is reasonable to include that would allow a reader/investor/user, or a reviewer years later, to determine quality and physical characteristics?

At this point the best I can determine is that it’s a scope of work issue with no specific Fannie or FHA guidance.

 

[TRESinc]

IMO there are two issues: On the lender side in terms of documentation, what is reasonable? Without plans/specs and material with cost breakdowns, how would you expect an appraiser to determine/support quality and other relevant physical characteristics? On the appraiser’s side in terms of the report, how do you determine/support quality and physical characteristics? And what is reasonable to include that would allow a reader/investor/user, or a reviewer years later, to determine quality and physical characteristics?

At this point the best I can determine is that it’s a scope of work issue with no specific Fannie or FHA guidance.

i need the plans, specs/materials and cost breakdown to complete the report. my clients know this, however they all seem to handle it a bit differently. one client will hold off ordering the appraisal until they have all that documentation and send it with the order. another will send over whatever they received from the borrower and instruct me to get whatever else i need from the builder. another one will just send the contract and tell me to get everything else from the builder. all 3 will send over any PCAs whenever they are received, and that is a pin in the butt at times.

i don't include the contract or blueprints in my reports. i do include the cost breakdown and my sketch based on the blueprints. to date i have never had anyone question that practice. back when we first went digital in the late 90s i did have a couple clients who asked me not to include any additional material as bask then they had a 1mb PDF file size limit but those days are long gone.

 

[Non Sequitur]

i need the plans, specs/materials and cost breakdown to complete the report. my clients know this, however they all seem to handle it a bit differently. one client will hold off ordering the appraisal until they have all that documentation and send it with the order. another will send over whatever they received from the borrower and instruct me to get whatever else i need from the builder. another one will just send the contract and tell me to get everything else from the builder.

That's the issue especially in a competitive market. If one lender is perceived to be "easier" to get along with by builders because they can skate by with little to no documentation, well we can guess how that goes over when a LO requires everything up front.

 

[gregb]

FDIC and/or OCC may have regulations that apply to your lender.

 

[Non Sequitur]

FDIC and/or OCC may have regulations that apply to your lender.

Not that I'm aware of other than typical safe and sound underwriting.

 

[gregb]

Not that I'm aware of other than typical safe and sound underwriting.

When the hypothetical condition is used in a construction appraisal, its impact on value and an "as is" value are typically required by my lender clients.