Appraisers say new Federal Housing Administration policy requires them to work outside their expertise and assess structural and mechanical systems, causing more confusion among the general public and exposing them to increased liability.

The FHA’s Single-Family Housing Policy Handbook, which applies to all FHA appraisals completed after Sept. 14, 2015, requires appraisers to report “if the roof has less than two years of remaining life” and “examine the heating system to determine if it is adequate for healthful and comfortable living conditions.”

According to FHA’s 2015 first-quarter market share report, the administration insured 16.5 percent of the purchase loans nationwide, and 5.7 percent of the refinancing market in 2014. That’s more than 750,000 borrowers and $133 billion worth of mortgages.

John S. Brenan is the director of appraisal issues at The Appraisal Foundation in Washington, D.C. When the FHA solicited input for the new policy, his organization wrote that the language in the policy might lead a consumer to rely on an appraisal report in lieu of a home inspection.

Brenan said the new policy has only been in effect for a few weeks, so it’s too soon to tell what impact it will have. He said he has heard from appraisers who say they’ll stop doing FHA appraisals altogether.

“We don’t want consumers to be confused about the differences between an appraisal and an inspection,” Brenan said. “Most appraisers use pre-printed language stating the limits of their expertise. They feel that protects them.  On the other hand, all it takes is a couple of lawsuits and you could have a very significant uprising of appraisers. Time will tell.”

A spokesman for the FHA said the new policy is more of a consolidation of multiple documents and that the “appraisal requirements are largely unchanged.” The agency said it has not seen a decrease in the number of approved appraisers and doesn’t expect to, since the changes in the policy, as it relates to appraisals, were not dramatic.

Appraisers Aren’t Inspectors

Paul Morgan of JP Morgan & Co. in Wakefield has been appraising homes in Massachusetts for 22 years and said he thinks the requirements are unfair.

“Appraisers are not trained home inspectors,” Morgan said. “Our profession is the science of valuation. We’re not HVAC specialists or roofing specialists.”

In fact, the Massachusetts standards of practice for home inspectors do not require them to estimate when a roof will fail or whether or not a heating system is adequate for healthful and comfortable living conditions. The American Society of Home Inspectors standards of practice don’t require that either.

Morgan said asking appraisers to report on the distance between a well and a septic system, as the new regulations do, is unrealistic, given that both are buried deep underground. He said he disclaims expertise in structural and mechanical systems in every report.

“We would be creating a misleading appraisal report by representing we have certain knowledge regarding the electrical, heating, plumbing systems or structural integrity, when we don’t,” Morgan said. “We can’t misrepresent any aspect of the report.”

Morgan also said his firm raised their fees to reflect the additional work and liability brought on by the new language in the FHA policy.

Liability Could Be A Problem

Brian L. Trotier is the executive vice president and COO of the Foundation for Real Estate Appraisers and the Associations Liability Insurance Agency Inc. He said he understands that the FHA just wants to make sure marginal borrowers aren’t confronted with major, unanticipated repairs that could result in them defaulting on their loans.

“They want the right information for the right reasons, but they’re going about it in the wrong way,” Trotier said. “I fear appraisers will eventually be criticized or sued for something they say about the condition of a property by a lender or borrower.”

Trotier said the new language in the FHA policy requires appraisers to make assessments of components of which they don’t have the background – or insurance coverage.

“They are required to have errors and omissions insurance and now they’re being ordered to do things that are outside the protection of that policy,” Trotier said. “I don’t think it improves the quality of the transaction.”

Trotier said some appraisers are just going to stop doing FHA appraisals because the fees aren’t commensurate with the additional risk.

“A claim could come in and I could see an insurance company not cover it if it has nothing to do with an appraisal,” Trotier said. “And if claims happen, then rates will undoubtedly go up. These are not the kinds of events the underwriter contemplated when they wrote these policies. They insure against the value of the property, not the condition of the property.”

Raising Fees

Susan Kelly of Appraisal Solutions in Rhode Island has been doing appraisals in Massachusetts for 10 years. She said several appraisers she knows have stopped doing FHA appraisals as a result of the policy changes. She said she will continue to do them, but she will raise her fees accordingly.

“When I look at the requirements they’re asking us to do and the time that’s going to take, that has to be reflected in the fees,” Kelly said. “I put it back on the lenders. The lenders control the market.”

Kelly said appraisers fees haven’t increased in 10 to 15 years and are largely controlled by lenders and appraisal management companies. She said she’s also afraid the new policy will discourage the already small number of people entering the field because of the increased liabilities.

“I just don’t see what homebuyers are going to gain by the FHA asking appraisers to do what home inspectors do,” Kelly said. “It changes the scope of our work and it will impact the lenders’ ability to process FHA loans. It’s going to take longer and cost more money.”

Jonathan Braverman, of Baker, Braverman and Barbadoro PC in Quincy, has been litigating real estate cases for 35 years. He said for most appraisers, complying with the new policy is “going to be extremely daunting.”

“I think appraisers are going to have to look at this and consider whether they can disclaim competency and liability in any of these specific areas,” Braverman said. “I believe appraisers are going to have to rethink what they’re willing to sign off on, how much they charge and what liability arises out of it.”

He said that while these appraisals are meant to be relied upon by lenders and the FHA, if the reports are given to consumers, it’s possible they could rely on the appraisal report in lieu of a home inspection, and that would greatly increase the appraiser’s liability.

Braverman said the new policy is meant to assure the FHA that properties they are insuring the loans on are up to a certain standard of fitness, but they are requiring appraisers to perform a lot of work that is outside their area of expertise.

“It’s not a bad idea,” he said, “but it’s going to have to evolve.”