7.6.7 Sections 220, 221(d)(4), and 231

A. Sections 220, 221(d)(4), and 231 (new construction only) do not call for an “as complete” value conclusion. The Department considers valuation work for these assignments to be an appraisal that is developed and reported in compliance with USPAP Standards 1 and 2.

1. By statute, FHA Multifamily new construction programs are replacement cost-limited mortgages and require a valuation of the land, a debt service analysis, and a cost approach to value. An estimate of the market value after completion is not required or relevant. The appraiser must fully examine the proposed construction costs of the subject project at the Firm Application stage. The MAP Lender’s Appraiser must present, analyze, and support the cost approach based on the plans, specifications, and development costs using either a subscription cost service, the lender’s third-party cost analyst, or a direct comparative analysis of recently completed similar developments. Substantial Rehabilitation projects require an estimate of the “As Is” value of the project (as opposed to only the land) by use of the income and direct sales comparison approaches to value when possible. Unoccupied or “shell” structures may be appraised using the sales comparison approach and/or cost approach.

NOTE: The Section 231 Sub Rehab Program is an exception – those projects require calculation of both a cost and an “as completed value” limited mortgage amount.

For apartments that are occupied, the primary method to determining value is the Income Approach. The value should be what the typical purchaser would pay for the income stream currently associated with the subject based on its actual condition and occupancy restrictions. The as-is value must not be based on after-rehab projected income or any advantages that will accrue as a part of the transaction.

NOTE: See special instructions for Cost Certification as it relates to As Is Valuation in Chapter 13, Section 13.21.

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Chapter 7 Valuation & Market Analysis 7.6 Appraisal Requirements

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2. The appraiser and the MAP Underwriter must assure that there is a sufficient narrative and exhibits to allow a reliable underwriting decision to be reached. This should include, but is not limited to, location maps, photographs of the subject, rent and expense comparables, site and floor plans, along with thorough explanations of all adjustments.