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What is the Difference between an Appraiser and a Home Inspector?
HUD now allows homebuyers to finance up to $300 in home inspection costs through FHA mortgages.
  Feature Story Back to Main
Source: U.S. Department of Housing and Urban Development
Andrew Cuomo, Secretary - June 10, 1999
  WASHINGTON -- In a move to protect consumers from buying homes with major undetected defects, Housing and Urban Development Secretary Andrew Cuomo today announced a Homebuyer Protection Initiative to improve home appraisals for over 1 million families who purchase homes each year with HUD-insured mortgages.

The landmark initiative will be phased into effect nationwide over the next few weeks to give families with mortgages insured by HUD's Federal Housing Administration a higher level of protection against appraisals that fail to uncover the need for major repairs in homes up for sale.

Cuomo said the consumer protection measure will save some individual homebuyers thousands of dollars each and will save homebuyers around the country millions of dollars by giving them an early alert to major problems in a home they are considering buying. FHA will not insure a mortgage on a home until defects uncovered by the improved appraisals are repaired.

"Our new FHA appraisals set a new standard for homebuyer protection, making homebuying safer and making an FHA mortgage a greater value," Cuomo said. "We will do more than any other mortgage insurer to safeguard the interests of hard-working families buying homes."

Cuomo said the Homebuyer Protection Initiative has six key elements:

· A new consumer education campaign about appraisals and inspections conducted by HUD, the National Association of Realtors, and the Mortgage Bankers Association of America.

· Mandatory testing of all appraisers to determine if they are qualified to perform FHA appraisals.

· More thorough and reliable appraisals designed to uncover significant defects in homes.

· Mandatory disclosure of detected home defects to homebuyers.

· Automated evaluation of appraisals.

· Stricter enforcement action to suspend poorly performing appraisers from working for FHA.

In addition, under the new initiative homebuyers will be required for the first time to sign and date a new informational form before they purchase a home with an FHA mortgage. The form advises them in plain English to get a home inspection in addition to an appraisal.

FHA requires appraisals by state-licensed appraisers on all homes it insures. FHA appraisals determine the value of a home and include a limited review of the physical condition of the home. No other mortgage insurer or lender requires such a physical review.

Home inspections are much more detailed examinations that go beyond assessing the basic soundness and safety of a home, and HUD's new form and public education campaign will both strongly urge homebuyers to get home inspections in addition to appraisals. FHA mortgages allow homebuyers to include appraisal and inspection costs in their mortgages.

The new initiative is being launched in response to problems with bad appraisals that fail to detect costly problems in homes before a purchase. Buyers are then often hit with thousands of dollars in unexpected repairs after they move into a home. In some cases, buyers have as a result defaulted on their mortgages and sometimes declared bankruptcy.

Cuomo said the new initiative represents a package of far-reaching reforms conceived last year when HUD set out to dramatically reinvent the FHA home appraisal process.

FHA does not make mortgage loans directly, but rather insures loans made by private lenders to homebuyers. FHA insurance guarantees the lender timely payment of the outstanding loan balance, in the event the homebuyer defaults on the loan. Because FHA mortgage insurance protects lenders from losses, it enables many Americans who otherwise would have been unable to quality for mortgages to get the loans and become homeowners. Over its six-decade history, FHA has made homeownership available to about 30 million families.

Today's announcement was part of National Homeownership Week, which will continue through Saturday. More than 1,200 events are taking place across the country to mark Homeownership Week, which celebrates the fact that 69.6 million American families own homes more than at any time in American history. This is 7.8 million more families than when the Clinton-Gore Administration took office in 1993. The percentage of families owning their homes jumped from 64 percent in 1993 to 66.7 percent in the first quarter of this year.

Here are more details of the six key elements of the Homebuyer Protection Initiative:


A new consumer education campaign about home appraisals and inspections will be carried out in cooperation with the National Association of Realtors and the Mortgage Bankers Association of America, under a new Memorandum of Understanding signed by the groups and HUD.

NAR represents 730,000 Realtors around the nation and the MBA represents 3,000 mortgage lending companies.

"I commend the NAR and the MBA for working with HUD to better inform homebuyers about the appraisal process and the importance of getting a home inspection," Cuomo said.

NAR and MBA will use their publications and websites to educate consumers about the Homebuyer Protection Initiative. The groups will also urge Realtors and lenders to provide informational material to customers and to discuss the importance of an inspection with homebuyers. NAR and MBA will work with HUD to develop a new consumer brochure, posters and other educational materials.


The Homebuyer Protection Initiative includes the first HUD-mandated testing of the approximately 30,000 private appraisers around the nation who perform mandatory appraisals before the sale of every home financed with an FHA mortgage. Appraisers flunking the test will not be certified to do FHA appraisals until they pass the exam.

The exam will help ensure that appraisers know and understand FHA requirements.


The Homebuyer Protection Initiative mandates a more thorough appraisal that requires the appraiser to complete a new three-page form describing the physical condition of a home in unprecedented detail. HUD will give appraisers a handbook explaining the new appraisal standards.

Areas covered by the more thorough appraisals include: problems with plumbing, walls, ceilings, roofs, foundations, basements, electrical systems, and heating and air-conditioning systems; soil contamination; the presence of wood-destroying insects; hazards and nuisances near homes (such as oil and gas wells); lead-based paint hazards; and other health and safety problems.

Here's an example of the additional details required under the new appraisals: Until now, appraisers needed only to note that structural deficiencies exist in a home. Under the new initiative, appraisers must note the exact deficiencies such as cracks in floors, cracks in walls and ceilings, evidence of water leakage, and evidence of damaged support structures.


Under the Homebuyer Protection Initiative, homebuyers with FHA mortgages must receive a new form written in plain English that summarizes all defects found by the appraisal before they purchase a home. The homebuyer cannot receive an FHA mortgage until all defects found by the appraiser have been corrected protecting the homebuyer from being hit with the repair costs.


HUD will establish a system that enables the Department to collect appraisal data electronically and track trends in appraisal quality. The system is currently being piloted in Pennsylvania and will be implemented nationwide by the end of the year.

The new system will enable HUD to perform high-speed computer-generated reviews of the performance of all appraisers, so that appraisers found to make inaccurate appraisals can be spotted and targeted for further review and possible enforcement action.

HUD has developed a series of statistical indicators to help target its appraiser oversight activities, particularly field review activities. The indicators work by comparing home values derived by appraisers and the techniques used to establish the values. Individual indicators are then rolled into a single appraisal score using a statistically derived weighting system.


A new appraiser enforcement regulation will give FHA the ability to swiftly suspend poorly performing appraisers from doing business with FHA. This will protect homebuyers from bad appraisers.


Sharon A. Millet, President, National Association of Realtors (NAR)
"Under this program, Realtors and lenders will play an integral role in helping FHA buyers understand the importance of a home inspection and the difference between an appraisal and an inspection. Homebuyers will gain a better understanding of the appraisal and home inspection processes and be able to protect themselves from buying properties in need of extensive repairs."

Donald Lange, President, Mortgage Bankers Association of America (MBA)
 "The HUD plan is a significant step toward protecting FHA borrowers. It demonstrates HUD's leadership as an advocate for homebuyers, and that this commitment is shared by the mortgage lending and real estate industries."

Bert Thornton, President, Appraisal Institute
"We believe that homeownership is fundamental to the prosperity and unity of our society. Secretary Cuomo is to be congratulated for his dedication to this proposition. As appraisal professionals, we are especially pleased to have been able to contribute to this initiative. It has been our pleasure to work with him and all the dedicated professionals at HUD to advance opportunities for all."

Frank Torres, Legislative Counsel, Consumers Union
"Secretary Cuomo deserves considerable credit for his continuing efforts to make the homebuying process better and fairer for all. It is important that consumers be made aware of the condition of the house they are considering to buy. This proposal, we feel, is a major step is that direction."

Tom Downs, Executive Vice President and CEO, National Association of Home Builders
"The National Association of Home Builders applauds Secretary Cuomo for the steps HUD is taking to strengthen the FHA appraisal process and better inform homebuyers. These measures will help ensure the continued success of the FHA single-family mortgage insurance program, which we feel is a cornerstone of the country's mortgage finance system."

Leonard Brunotte, Founder & President of Guardian Inspection & Information Services
As professional home and commercial property inspectors, we strongly support Secretary Cuomo's efforts to protect and to educate not only consumers, but the real estate community at large, of the important role of the home inspector.  Consumers need to know that the appraiser and the inspector perform two entirely different but equally important tasks.  Both of which are vital to providing information to the homebuyer to assist in making an informed purchase decision."

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