It has come to the attention of the Board through numerous
inquiries from our licensees that there is some confusion surrounding a number
of issues related to the appraisal of manufactured housing properties in Alabama.
The majority of inquiries relate to distinctions between real estate and
personal property, proper appraisal methodology, use of land/home packages as
comparable sales, and general USPAP compliance issues. Based on comments from licensees as well as
manufactured housing dealers and lenders, it is apparent that many appraisers
are either hesitant or unwilling to accept appraisal assignments involving
From an appraisers viewpoint, the idea that manufactured
housing permanently located on a parcel of land can be valued in similar
fashion to a site built structure is a relatively new concept.
Many appraisers have indicated they decline assignments to
appraise manufactured housing because they lack the knowledge and experience to
perform the assignment competently.
Other impediments cited by licensees include conflicting governmental
regulations, overly restrictive underwriting guidelines, and the inability to
obtain legitimate comparable sales data.
In our discussions with other state appraisal regulatory agencies, we
have found that these issues are not unique to Alabama.
The term Manufactured Home is not to be confused with
other types of factory built housing such as Modular Homes, Panelized Homes,
and Pre-Cut Homes. Today, all
manufactured homes are built entirely under the federal building code
administered by the U. S. Department of Housing and Urban Development
(HUD). Generally speaking, a manufactured home is one that is
structurally complete before leaving the factory and is transported in one or
more sections on an attached undercarriage.
Manufactured homes are built on steel frames (I beams) with a tongue
and are mounted on axles and wheels for transport.
On June 15, 1976 the Federal Mobile Home Safety and
Construction Standards Act was enacted by Congress to ensure that minimum
standards of construction established by the federal government were applied
across the industry. Prior to this
time, mobile homes were built using a variety of standards established by
individual manufacturers and state building codes with little consistency as to
quality of construction or safety considerations. All mobile or manufactured home units constructed after June 15,
1976 must have the red metal HUD label certifying that it has been
inspected in accordance with the requirements of HUD and constructed in
conformance with the Federal Mobile Home Safety and Construction Standards
Act. On October 8, 1980 public law
96-399 was enacted by the U. S. Congress officially changing the name from
mobile home to manufactured home.
When appraising a manufactured home property, it is
imperative that the appraiser make every effort to identify the ultimate user
of the appraisal because there are a myriad of Supplemental Standards imposed
by conventional lenders, Fannie Mae, and HUD.
Appraisers must comply with these supplemental standards in addition to
the applicable standards set out in USPAP. HUDs appraisal standards are very
comprehensive and can be viewed and downloaded from their internet web site at www.hudclips.org. Fannie Maes appraisal
criteria are far less comprehensive than HUDs, but unfortunately they are not
published on the Fannie Mae web site (www.fanniemae.com). Fannie Maes criteria for manufactured
housing appraisal can be obtained from Fannie Mae approved lenders or the
Alabama Real Estate Appraisers Board.
In manufactured housing appraisal, the most critical
factor to be determined is whether the manufactured home is to be appraised as
personal property or real property.
Real estate (or real property) as defined in the 2001 edition of USPAP
is an identified parcel or tract of land, including improvements, if
any. The Courts have generally held
that an article in the nature of personal property which has been so annexed to
the realty that it is regarded as a part of the land becomes real
property. Manufactured housing, which
by nature is personal property, must therefore be permanently affixed to
the land in order to be appraised as real estate (or real property). Manufactured homes not permanently affixed
to the land must be appraised as personal property.
In the absence of well defined guidelines that identify
the criteria necessary to meet the standard of
permanently affixed, the Board officially recognizes HUDs Permanent
Foundation Guide for Manufactured Housing as set out in Handbook 4145.1, REV-2,
CHG-I, effective February 14, 1992 and Fannie Maes guidelines as set out in
Section 304, Page 730 of Fannie Mae publication Property and Appraisal
Analysis (11/16/94 Ed.). The HUD
handbook can be viewed and downloaded from the internet at www.hudclips.org. The Fannie Mae guidelines can be obtained from the Board office
or by calling Fannie Maes Mortgage Credit Policy Office at (202) 752-6816.
If the appraiser determines that the manufactured home is
permanently affixed to the land, the appraisal can be developed and reported on
the Form URAR 1004 in compliance with Standards 1 and 2 of USPAP and any
Supplemental Standards that may be imposed by the client. If the appraisal
assignment involves a manufactured home that has yet to be sited but is to be
permanently affixed as real property, the appraisal should be developed in
conformance with USPAP Standard 1-4(h) for proposed construction. The Cost Approach should be developed using
data from generally accepted cost data sources such as Marshall & Swift
that provide cost data not only for the manufactured housing unit, but also the
permanent foundation costs and site improvement costs.
When appraising a manufactured home as a component of the
real estate, the Sales Comparison Analysis can only be developed using open
market, arms-length transactions of similarly sited manufactured home
properties. Land/home packages are not
appropriate for use in the Sales Comparison Approach since the property, as a
whole, has not been exposed to the market for a reasonable period of time. In its simplest term, a land/home package is
the sum total of the dealer-financed purchase price of a new or used
manufactured home off the dealers lot and the price paid for the land. When
appraisers either wittingly or unwittingly attempt to pass off a land/home
package as a comparable sale, the information source has typically been found
to be a HUD-1 closing statement provided by the dealer. Custom-build contracts are the site-built
home counterparts to manufactured home land/home packages and are not acceptable for use as
comparable sales in appraisal of site-built homes.
If there are no manufactured housing sales within close
proximity to the Subject, Fannie Mae and HUD allow for an expanded search
radius. Although Fannie Mae and HUD do not specify how far the search radius
can be expanded, proper appraisal practices dictate that the sales be located
in a competitive market area.
Unfortunately, many conventional lenders have unrealistic or overly
restrictive proximity guidelines for comparable sales data. As a last resort
when no market sales of similarly sited manufactured home properties are
available, Fannie Mae and HUD allow the use of site-built homes as comparable
sales. If forced to use site-built
properties as comparables, the appraiser must explain and support the
reason for their use and make appropriate and justifiable adjustments for size,
site, construction quality, utility, etc.
As a word of warning, the Board cautions all appraisers
that, before using sales of site-built properties as comparables, a diligent
search of all potential sources of comparable sales data for
manufactured housing properties must be made and documented in the report and
work file. The search must not be
limited only to traditional data sources such as MLS, but should include other
resources including but not limited to tax assessor/collector offices, probate
records, real estate agencies, appraisers, and developers.
When the manufactured home being appraised is not
(existing) or will not be (proposed) permanently affixed to the site, the
manufactured home unit must be appraised as personal property in accordance
with USPAP Standards 7 and 8 and any Supplemental Standards imposed by the
client. For personal property loans insured
through HUD, the appraiser must be a qualified user of the National Appraisal
System (NAS), and the appraisal must be based on the current edition of the
National edition of the N.A.D.A. Manufactured Housing Appraisal Guide.
When a separate land appraisal is required for
conventional lenders, the standard Land Appraisal Form should be used and the
appraisal developed and reported in accordance with USPAP Standards 1 and
2. For HUD manufactured home lot
appraisals, the appraisal must be developed and reported in accordance with HUD
Handbook 4150.2, CHG-1, Section 8-4 and in accordance with USPAP Standards 1
Appraisers should be aware that the manufactured housing
industry communicates the measurements of manufactured housing units as
shipping measurements, which include the tongue, overhangs, bay windows,
etc. This measurement is not to be used
in developing the GLA square footage for appraisal purposes. The appraiser should consider only the
heated living area in determining the GLA size of the manufactured home.
Dimensions published in dealer brochures are typically the shipping
measurements. When appraising new
manufactured homes with proposed siting, the appraiser should refer to the
manufacturers plans and specifications to determine the true heated living
area of the unit. In the absence of
plans and specifications, the appraiser should inspect/measure the actual unit
or an identical unit on the dealers lot.
With particular reference to USPAP Standards 1-4(e) and
1-5(a), the appraiser should exercise caution when appraising manufactured
housing for purposes of financing dealer-packaged land/home transactions. Sales contracts between dealers and
purchasers often times reflect sales prices that exceed the true consideration
being paid for the housing units themselves.
The contract price may reflect the costs of dealer incentives or
concessions as well as incidental component costs, all of which can be
difficult to extract or identify. Examples include personal property (i.e.
furnishings), site prep/unit set-up, and site improvements including septic
systems and water/electric hookups.
Usually, these incidental costs are added to the actual price of the
manufactured housing unit to arrive at the contract price, and in many cases
the land value is included as well.
This contract price is the figure typically reflected on the HUD-1
Closing Statement with little or no disclosure of what is actually included in
the contract price.
The ultimate responsibility rests with the appraiser to
make sure that he or she is competent to perform the appraisal when accepting
an appraisal assignment involving manufactured housing. The information
presented in this article is not to be considered an all-inclusive source of
information for the appraisal of manufactured housing. However, it does establish the basic
guidelines and methodology deemed appropriate by the Board for appraising
manufactured housing in Alabama. All
questions or requests for additional information should be directed to the
Investigative Staff of the Alabama Real Estate Appraisers Board.