HUD made good on its promise to issue revised guidance on how appraisers should handle appliances in FHA appraisals. The latest revisions to HUD Handbook 4000.1, issued September 30, 2016, provide some clarity about appliances.
First, the Handbook now states specifically what is considered an appliance. The list includes “refrigerators, ranges/ovens, dishwashers, disposals, microwaves, and washers/dryers.” This definition was previously unclear; some appraisers had thought “appliances” could include spas, trash compactors, sound systems, intercoms, security systems, automatic garage door openers, etc.
Second, the Handbook now clarifies when appliances are required to be operational. The revised Handbook states, “Appliances that are to remain and that contribute to the market value opinion must be operational.” The Handbook goes on to state, “The Appraiser must note all appliances that remain and contribute to the Market Value.”
So, an appliance is required to be operational only if: (1) it remains with the property; and (2) it has contributory value and is included in the market value opinion (i.e. if it has value and is included in the appraisal).
Simply put, if an appliance is not included with the sale, it is not required to be operational. The better news for appraisers is that if the appliance is not included in the appraiser’s market value of the property, then it is not required to be operational. For example, appraisers generally do not include free-standing appliances in FHA appraisals because they are considered personal property and lenders do not want to make mortgage loans on personal property. The bottom line is that if the appliance is not real property, the appraiser is not required to operate it.
No revision to the HUD Handbook is made without generating some controversy. Some believe this revision eliminates the appraiser’s obligation to operate appliances entirely. That does not appear to be the case. The requirement in the Handbook (as quoted above) states, “Appliances that are to remain and that contribute to the market value opinion must be operational.” It does not specifically state who is required to determine whether the appliances are operational, but because this appears in the Appraiser and Property Requirements section of the Handbook (Section II D 3 e ii, specifically) it would appear that it is still the appraiser’s responsibility to determine whether the appliance that remains with the property and contributes to the market value opinion is operational.
HUD’s September 2016 revisions to the Handbook address more than just appliances. Learn about other appraisal-related changes here.
NOTE: The information in this article represents the author’s interpretation of HUD Handbook 4000.1. This article was not written or approved by HUD/FHA or any of its representatives.
Article by Daniel A. Bradley, SRA, CDEI. Dan Bradley is the Director of Online Appraisal Curriculum for McKissock LLC. He has been a practicing real property appraiser since 1987, and has been instructing and authoring appraisal courses for over 20 years. He is a state certified general appraiser in Pennsylvania and holds an SRA designation from the Appraisal Institute. From 2004 until 2013, Dan was a member of the Pennsylvania State Board of Certified Real Estate Appraisers, serving for five years as vice-chairman and three years as chairman.