Federal Housing Administration (FHA)-approved appraisers are responsible for assessing the value of a property that is the subject of an FHA-insured mortgage application. FHA assists people who may not be able to obtain a mortgage for credit or employment reasons to obtain a mortgage at a competitive interest rate. Appraisers are also responsible for verifying that a property is safe and habitable for the proposed buyer. Assessing the risk to the lender if the property falls into foreclosure is the primary reason a mortgage lender uses an appraiser before processing a mortgage. An FHA appraiser should receive specific education and training to obtain both licensure and certification.
Mortgages are insured by the FHA to provide protection to the lender when providing funds to purchase a property to a buyer whose credit may not meet the level required for a non-FHA mortgage. Each lender employs an appraiser to determine the value of the property based on factors such as size, location and condition of the property. FHA-approved appraisers typically value a property by determining an average price based on the sales prices of three comparable properties in the same area (often referred to as "comps") of comparable size and condition. All three properties have typically been sold within the last 12 months to obtain a median value of the property to be mortgaged.
The safety and condition of the property being appraised are not the FHA appraiser's main priority, although FHA guidelines allow an appraiser to make basic judgments about the condition of the property. Appraisers can determine whether a property is uninhabitable and recommend that an FHA property sale not proceed. Lenders then receive a list of repairs that must be completed to make the property habitable. Repairs recommended by the appraiser may be required by the lender in order for the mortgage to proceed.
Lenders are responsible for finding and using an FHA appraiser to ensure that the potential losses associated with foreclosure do not exceed the value of the property. Appraisers determine whether a property's proposed purchase price is reasonable and reflects market value. The property value should be high enough to ensure that the lender can recover most of the mortgage and costs associated with a potential foreclosure.
Each FHA appraiser should be state licensed or certified after completing the appropriate training courses. Specialty training courses are taken by appraisers who wish to be accepted by the FHA as an approved appraiser. Each lender often employs its own appraisers who are licensed to appraise properties according to FHA guidelines.