Saturday, February 13, 2010

FHA Guidelines

Many home owners and property buyers are now using FHA to get financing. Here are some of HUD/FHA guidelines.



2-10. BASIC VALUATION PROCESS. The purpose of valuation, definition of
value, valuation principles, and the practical limitations of
appraisal data dictate the basic valuation process. The process
embraces:

A. A study of the future use of the property and of the motives
of possible prospective owners;

B. A forecast representing the most probable series of expected
future returns to be derived from continuous ownership of the
property; and

C. An analysis which converts the expected returns into a
present price, that is, an estimate of value.
Charlotte NC Appraiser

2-11. DETERMINATION OF RIGHTS INCLUDED IN PROPERTY. The word property
refers to rights which are possessed through acquisition of title,
that is of ownership. The concept of ownership embraces the rights
of possession, control, enjoyment, and disposition. It is these
rights in relation to a specific property that must be valued. The
rights must be known before they can be valued. The extent of the
rights depends upon the nature of the title that will be held by the
party whose rights are being valued.

A. Fee Simple Title. Fee simple absolute may be defined as "the
largest possible estate in real property." There are other forms
of holding title to real property, such as fee determinable and
conditional. There are also various ways of holding title such
as life estates and remainders, joint tenancy, and tenancy by the
entirety. Regardless of the nature of title, the rights of an
owner even though exclusive, are never absolute for they are
always subject to the rights of the sovereign authority, such as
the right to tax, to regulate and control as by zoning ordinances
or other legislative enactments, and the right of eminent domain.

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(2-11) B. Easements and Other Restrictions to Rights. If a title is
encumbered the rights are correspondingly restricted and may be
less valuable, depending upon the nature of the encumbrances.
Examples are encumbrances in the nature of easements,
reservations, restrictions, and rights-of-way.

C. Lessee, Lessor Rights. The term "property" may refer only to
the rights established by a lease. A lease is an agreement
under which the tenant (Lessee) acquires certain rights in a
real property for a designated period of time from the Landlord
(Lessor). The Lessor is usually, but not always, the owner of a
property. The terms and conditions of a lease must be
ascertained before the lessee's or lessor's "property" can be
valued.

D. Delineation of Rights as a Prerequisite to the Value Estimate.
Property rights generally include the right to use and occupy,
the right to lease to others, and the right to encumber or sell.
The exercise of these various rights results in the realization
of benefits. The extent and nature of the rights determine the
extent and nature of the benefits which, when compared to other
properties that contain the same rights and benefits, indicate
the value to be ascribed to the property or rights to the
property. The benefits cannot be valued except in consideration
of certain assumed characteristics and motives for ownership,
such as the right to occupy, or to lease, or to mortgage or sell
that vests in any owner holding title in fee simple
unencumbered. An owner might occupy the property and value it
because of its desirability as a place of residence for his/her
family, or an owner might value the property because of the net
rental he/she can realize from it. After delineating the
property, or rights to be appraised, appraisers are required to
value them from the point of view of typical buyers to whom the
property exerts its strongest appeal.

Real estate appraisers Charlotte North Carolina

2-12. ESTIMATION OF RETURNS FROM PROPERTY. Returns from property relate
to either future direct services or the amenities which will be
enjoyed by an owner-occupant, or to dollar incomes which are the
source of value to an investor. The forecast must embrace the
entire future. It is incomplete if it includes only a forecast of
services or returns which are expected to accrue during the next
year, a typical early year, or "on the average" in early years.
Future services of properties are best conceived if they are
visualized as being in the form of a flow of returns. The returns
will be periodic services which include shelter, enjoyment and pride
of ownership, or net dollar income. All forms of returns should be
considered as a flow of benefits, whether they take the form of
direct satisfactions or dollars.

A. Trend and Flow of Returns. In urban residential real estate,
the flow of returns is present only when the site is occupied by
useful buildings or other programs of use. Undeveloped vacant
land is presumed to become productive shortly after the
completion of
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(2-12) construction. Typically, the flow of returns will rise rapidly
to a maximum rate in the early life of the improvements and
gradually decline during midlife and late life until the
improvements have finally lost profitable usefulness and the flow
of returns is only large enough to justify purchase of the
property as vacant land. (However, see Gentrification, page 4-6.)

B. Net Return. The difference between the value of total services
or total revenues of a property, and the expenses and taxes, is
the net return. As the value of a property arises from its
capacity to produce net returns, the characteristics of the
future net income stream must be forecast in valuation.

1) The future net income stream has three characteristics:

a. Quantity, or the size of the income stream at the time
of appraisal and thereafter;

b. Quality, or the possible fluctuation in size of the
income stream; and

c. Duration, or the period of time during which the income
stream in any size will endure.

2) Physical deterioration and obsolescence will decrease the
average amount of net returns in the future, thereby
decreasing the margin between amounts of net returns and the
periodic amounts which represent a fair return on the value
of the land. The services of buildings are limited to
duration owing to the fact that buildings will eventually
become useless due to the action of forces which cause
deterioration, disintegration, and obsolescence. Therefore,
the portion of the net income attributable to the building,
whether measured in services or dollars, is not only of
limited duration but subject to decline during the period of
its continuance. Gradually, the value of improved property
may decline until eventually only land value remains. At
that time, the building has reached the end of its economic
life.

Charlotte FHA Appraiser NC

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