Property appraisals are now standardized

On Sept. 1, in a little noticed, but possibly profound change, new rules aimed at standardizing how property appraisals are done and reported went into effect.

Fannie Mae and Freddie Mac are mandating the new rules. Since lenders sell most of their home loans to Fannie and Freddie, the new rules would apply to most home sales and refinances.

The Federal Housing Administration (FHA) is also incorporating the changes but will not require them to go into effect for its mortgage products until Jan. 1, 2012.

The rules are meant to standardize a sometimes inconsistent and subjective process. But some real estate and lending experts believe they will actually end up creating more confusion for buyers and sellers.

Under the new rules, appraisers must use a standard set of abbreviations to describe a home and also rate the home’s condition and quality on a scale of 1 to 6.

Homeowners and real estate agents also must provide more information to appraisers, such as whether kitchens and bathrooms have been updated and when the work was done.

The new rules will change home appraisals from a narrative form to a list of codes. So, for example, appraisals will now include abbreviations such as, “adj park” for “adjacent to park, or “wtr” for “water views.”

A property’s condition will be rated on a scale of 1 to 6, ranging from new construction (6) to having substantial defects (1). A property’s “quality” will also be rated on a scale of 1 to 6, with the top ranking reserved for architecturally designed homes and the lowest for homes lacking indoor plumbing and electricity.

Many appraisers and real estate agents are still not aware of the changes, which could result in loan delays and confusion among buyers and sellers.

I am hoping articles like this will help educate and alert the general public to these new changes. We don’t need any more confusion or delays in the housing market.

***** 

Q:

I’ve owned a house for 30-plus years which is now for sale. I own a modular home where I currently live. I took out a mortgage on the old house to buy the modular. Now I’m concerned about the capital gains tax since I haven’t lived there for two of the last five years.

A:

I guess you should be concerned. In order to claim the exemption against capital gains taxes, you must have lived in the property as your primary residence for two out of the last five years.