source:
  type: guide
  id: hud-4000-1-ii-c-development-of-the-market-value
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — c. Development
    of the Market Value (06/27/2025)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part II — c. Development
    of the Market Value (06/27/2025).
  coverage_tier: operative
obligations:
- id: hud-4000-1-ii-c-development-of-the-market-value-full
  canonical_id: hud-4000-1-ii-c-development-of-the-market-value-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part II — c. Development
    of the Market Value (06/27/2025)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — c. Development
      of the Market Value (06/27/2025)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: 'c. Development of the Market Value (06/27/2025) i. Value Required
      (A) Definition of Market Value Market Value refers to the most probable price
      which a Property should bring in a competitive and open market under all conditions
      requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably
      and assuming the price is not affected by undue stimulus. Implicit in this definition
      is the consummation of a sale as of a specified date and the passing of title
      from seller to buyer under conditions whereby: (1) buyer and seller are typically
      motivated; (2) both parties are well informed or well advised, and each acting
      in what they consider their own best interest; (3) a reasonable time is allowed
      for exposure in the open market; (4) payment is made in terms of cash in U.
      S. dollars or in terms of financial arrangements comparable thereto; and (5)
      the price represents the normal consideration for the Property sold unaffected
      by special or creative financing or Sales Concessions granted by anyone associated
      with the sale. Adjustments to the comparables must be made for special or creative
      financing or Sales Concessions. No adjustments are necessary for those costs,
      which are normally paid by sellers as a result of tradition or law in a market
      area; these costs are readily identifiable since the seller pays these costs
      in virtually all sales transactions. Special or creative financing adjustments
      can be made to the comparable Property by comparisons to financing terms offered
      by a third-party institutional lender that is not already involved in the Property
      or transaction. Any adjustment should not be calculated on a mechanical dollar
      for dollar cost of the financing or concession but the dollar amount of any
      adjustment should approximate the market’s reaction to the financing or concessions
      based on the Appraiser’s judgment. (B) Standard The Appraiser must determine
      the Market Value of the subject Property. (C) Required Analysis and Reporting
      The Appraiser must analyze all data researched and collected prior to reporting
      the value. The Appraiser must include all components of the real estate in the
      analysis. The Appraiser must not include the value of Personal Property in the
      appraisal. ii. Appraisal Conditions (A) Definition Appraisal Conditions refer
      to anything the Appraiser requires to occur or be known before the value of
      conclusion can be considered valid. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      D. Appraiser and Property Requirements for Title II Forward and Reverse Mortgages
      4. Valuation and Reporting Protocols Handbook 4000.1 843 Last Revised: 11/26/2025
      (B) Standard Conclusions about the observed conditions of the Property provide
      the rationale for the opinion of Market Value. The completed appraisal form,
      together with the required exhibits, constitutes the reporting instrument for
      FHA-insured Mortgages. Conditions of the Property, mortgage type and the market
      will determine if the appraisal is to be performed as-is, or if the value opinion
      needs to be conditioned upon an extraordinary assumption(s), a hypothetical
      condition(s), subject to an additional inspection, or completion of construction,
      repairs or alterations. (C) Required Analysis and Reporting The Appraiser must
      state in the appraisal report whether repairs, alterations or inspections are
      necessary to eliminate conditions threatening the continued use, security, and
      marketability of the Property. The following table illustrates property conditions
      under which an Appraisal Condition must be made. Report Conclusion Appraisal
      Condition 1. There is/are no repair(s), alteration(s) or inspection condition(s)
      noted by the Appraiser. 2. Establishing the As-Is Value for a 203(k). 3. The
      Property is being recommended for rejection. 4. Intended use is for Pre-Foreclosure
      Sale (PFS) in accordance with 24 CFR § 203.370 or Claims Without Conveyance
      of Title (CWCOT) in accordance with 24 CFR § 203.368. 5. Intended use is for
      Real Estate Owned (REO) in accordance with 24 CFR § 291.100. “As-is” 1. Proposed
      Construction where construction has not started. 2. Under Construction but not
      yet complete (less than 90%). 3. Certain Section 203(k) Rehabilitation Mortgages
      depending on scope of work. “Subject to completion per plans and specifications”
      1. Repair or Alteration Condition(s) noted by the Appraiser to: • protect the
      health and safety of the occupants; • protect the security of the Property;
      • correct physical deficiencies or conditions affecting structural integrity.
      2. Certain Section 203(k) Rehabilitation Mortgages depending on scope of work.
      3. Under Construction, 90% or more complete with only minor finish work remaining
      (buyer preference items e.g., floor coverings, appliances, fixtures, landscaping,
      etc.). This eliminates the need for plans and specifications. “Subject to the
      following repairs or alterations” II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      D. Appraiser and Property Requirements for Title II Forward and Reverse Mortgages
      4. Valuation and Reporting Protocols Handbook 4000.1 844 Last Revised: 11/26/2025
      Report Conclusion Appraisal Condition Required inspection(s) to meet HUD’s Minimum
      Property Requirements and Minimum Property Standards.as noted by the Appraiser.
      “Subject to the following required inspection” When New Construction is less
      than 90 percent complete at the time of the appraisal, the Appraiser must document
      the floor plan, plot plan, and exhibits necessary to determine the size and
      level of finish. When New Construction is 90 percent or more complete, the Appraiser
      must document a list of components to be installed or completed after the date
      of appraisal. iii. Valuation Development (A) Standard There are three valuation
      approaches as applied to one-to four-residential unit Properties: • sales comparison
      approach; • cost approach; and • income approach to value. (B) Required Analysis
      and Reporting The Appraiser must obtain credible and verifiable data to support
      the application of the three approaches to value. The Appraiser must perform
      a thorough analysis of the characteristics of the market, including the supply
      of properties that would compete with the subject and the corresponding demand.
      The Appraiser must perform a highest and best use of the Property, using all
      four tests and report the results of that analysis. (C) FHA Data Requirements
      for the Subject and Comparable Properties The Appraiser must verify the characteristics
      of the transaction (such as sale price, date, seller concessions, conditions
      of sale) and the characteristics of the comparable property at the time of sale
      through reliable data sources. The Appraiser must verify transactional data
      via public records and the parties to the transaction: agents, buyers, sellers,
      Mortgagees, or other parties with relevant information. If the sale cannot be
      verified by a party to the transaction, the Appraiser may rely on public records
      or another verifiable impartial source. MLS records and property site visits
      alone are not acceptable verification sources. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      D. Appraiser and Property Requirements for Title II Forward and Reverse Mortgages
      4. Valuation and Reporting Protocols Handbook 4000.1 845 Last Revised: 11/26/2025
      (D) Effective Age Standard The effective age reflects the condition of a Property
      relative to similar competitive properties. The effective age may be greater
      than, less than, or equal to the actual age. Any significant difference between
      the actual and effective ages requires an explanation. (E) Approaches to Value
      The Appraiser must consider and attempt all approaches to value and must develop
      and reconcile each approach that is relevant. (1) Cost Approach to Value The
      Appraiser may use any of the credible and recognized methods to complete the
      cost approach (unit in place, segregated costs, price per unit, detailed builder’s
      cost method, or any other credible source that can be duplicated by the reader).
      If the Appraiser uses cost estimates provided by the contractor or builder of
      the Property, the cost estimates must be reasonable and independently verified.
      (a) Land Valuation (i) Standard If the cost approach is applicable, the Appraiser
      must estimate the site value. Acceptable methodology used to estimate land value
      include sales comparison, allocation, and extraction. (ii) Required Analysis
      and Reporting The Appraiser must include a summary of the supporting documentation
      and analysis in the appraisal. The Appraiser must maintain comparable land sales
      data and analysis or other supporting information in the Appraiser’s file and
      include it by reference in the appraisal. For Properties with Excess Land, the
      Appraiser must include all comparable land sale data and analysis in the report.
      (b) Estimate of Cost New for Housing (i) Standard The Appraiser may use either
      the replacement cost or the reproduction cost. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      D. Appraiser and Property Requirements for Title II Forward and Reverse Mortgages
      4. Valuation and Reporting Protocols Handbook 4000.1 846 Last Revised: 11/26/2025
      (ii) Required Analysis and Reporting The Appraiser must state the method used
      and the source of the data. The Appraiser must use the current version of a
      published cost data source recognized by the industry. The Appraiser must report
      the quality rating selected and utilized, as well as identify the source of
      the data, and its publication and/or effective date. The Appraiser is expected
      to be aware of local cost data from builders, contractors, building supply firms,
      and other building industry participants as a check against the published cost
      data. The Appraiser must also provide a supporting explanation when applying
      adjustments to the published cost data, such as adjustments for: • transportation
      and labor in remote areas; • entrepreneurial profit; or • fees and charges unique
      to the area. Instructions for the cost approach as applied to Manufactured Homes
      are addressed in the Manufactured Home Appraisal Report section of the FHA Single
      Family Housing Appraisal Report and Data Delivery Guide. (2) Income Approach
      to Value for Residential Properties (a) Standard The Appraiser should apply
      the income approach to a Single Family residential Property when there is evidence
      of recently rented and then sold data pairs. The Appraiser must verify if the
      subject or the comparable rentals and sales are subject to rent control restrictions.
      If comparable sales do not have rent control restrictions similar to those of
      the subject, an appropriate adjustment should be applied. (b) Required Analysis
      and Reporting The Appraiser must analyze rental data and provide support for
      the estimated market rents and adjustments applied to the comparable rentals
      in the reconciliation of this approach. The Appraiser must derive the Gross
      Rent Multiplier (GRM) factor from market data and support it prior to applying
      it to the market rent for the subject. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      D. Appraiser and Property Requirements for Title II Forward and Reverse Mortgages
      4. Valuation and Reporting Protocols Handbook 4000.1 847 Last Revised: 11/26/2025
      (3) Sales Comparison Approach (a) Standard The sales comparison approach is
      required for all appraisals. (b) Required Analysis and Reporting The Appraiser
      must present the data, points of comparison, and analysis; provide support for
      the Appraiser’s choice of comparable properties, and the adjustments for dissimilarities
      to the subject; and include sufficient description and explanation to support
      the facts, analyses and the Appraiser’s conclusion. If the data from the market
      area is insufficient to support some of these requirements, the Appraiser must
      provide the best information available and include an explanation of the issue,
      the data available, the conclusions reached and the steps taken by the Appraiser
      to attempt to meet the guidelines. (c) Comparable Sale Selection (i) Characteristics
      of the Property Comparable sale selection must be based on properties having
      the same or similar locational characteristics, physical characteristics and
      the priority the market assigns to each factor, including: • site; • site view;
      • location; • design; • appeal; • style; • age; • size; • utility; • quality;
      • condition; and • any other factor that in the Appraiser’s professional judgment
      is recognized as relevant in the subject market. (ii) Characteristics of the
      Transaction Definition An Arm’s Length Transaction refers to a transaction between
      unrelated parties and meets the requirements of Market Value. II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT D. Appraiser and Property Requirements for
      Title II Forward and Reverse Mortgages 4. Valuation and Reporting Protocols
      Handbook 4000.1 848 Last Revised: 11/26/2025 Standard The Appraiser must utilize
      Arm’s Length Transactions for comparable properties except when there is evidence
      that REO sales or short sale/Pre- Foreclosure Sale (PFS) transactions are so
      prevalent that normal Arm’s Length Transactions are not present or supported
      by the market trend. A transaction involving a foreclosure transfer to a Mortgagee
      is not evidence of the Market Value, and is not a valid type of comparable sale
      for an FHA-insured Mortgage. The common types of property transfers listed below
      require investigation and analysis to ensure that they meet the definition of
      an Arm’s Length Transaction: • REO sale – transfer from Mortgagee to new owner;
      • short sale/PFS; • estate sale; • court-ordered sale; • relocation sale; and
      • flip transactions. Required Analysis and Reporting The Appraiser must include
      as many comparable properties as are necessary to support the Appraiser’s analysis
      and conclusion. At a minimum, the Appraiser must include the most recent and
      relevant sales, preferably within the last six months. The Appraiser must include
      at least three sales that settled no longer than 12 months prior to the effective
      date of the appraisal. The Appraiser must provide additional support by including
      more sales, offerings, offerings now under contract, or relevant sales that
      settled more than 12 months prior to the effective date of the appraisal. The
      Appraiser must analyze the whole market, including when there are a number of
      sales that may or may not be classified as arm’s length sales or may not be
      classified as directly similar to the Property. (d) Adjusting Comparable Properties
      (i) Standard Calculation of the Contributory Value includes methods based on
      the: • direct sales comparison approach; • cost approach; and • income approach.
      II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT D. Appraiser and Property Requirements
      for Title II Forward and Reverse Mortgages 4. Valuation and Reporting Protocols
      Handbook 4000.1 849 Last Revised: 11/26/2025 (ii) Required Analysis and Reporting
      The Appraiser must apply all appropriate techniques and methods, conduct an
      analysis, and report the results. The Appraiser must include the reasoning that
      supports the analyses, opinions, and conclusions in the report. (e) Comparable
      Selection in Diverse Real Estate Markets (i) Standard Comparable sales should
      be selected based on similar locational and physical characteristics, not sales
      price. Subdivisions, Condominiums or Planned Unit Development Projects Arm’s
      length resale activity from within the established subdivision, condominium
      or PUD project is often the best indicator of value. (ii) Required Analysis
      and Reporting The Appraiser must include an analysis of the comparable properties
      that includes an explanation. The analysis must reflect typical Borrower expectations
      and behavior. Subdivisions, Condominiums or Planned Unit Development Projects
      If the Appraiser uses sales of comparable properties that are located outside
      of the subject’s subdivision or project, the analysis must reflect typical Borrower
      expectations and behavior. For Properties in new subdivisions, or units in new
      (or recently converted) Condominium Projects, the Appraiser must include, for
      comparison, properties in the subject market area as well as properties within
      the subject subdivision or project. Whenever possible, the Appraiser must select
      at least one sale from a competing subdivision or project and one sale from
      within the subject subdivision or project so that this market acceptance may
      be directly compared. If the new project is mature enough to have experienced
      arm’s length resales, the Appraiser must also analyze and report those properties.
      (f) Comparable Sale Selection in Rural and Slow Growth Markets If insufficient
      comparable sales have occurred within the previous six months, the Appraiser
      must include at least three sales that occurred less than 12 months prior to
      the date of appraisal. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT D. Appraiser
      and Property Requirements for Title II Forward and Reverse Mortgages 4. Valuation
      and Reporting Protocols Handbook 4000.1 850 Last Revised: 11/26/2025 Where there
      is a scarcity of recent comparable sales data, the Appraiser may include sales
      older than 12 months as additional sales in markets. The Appraiser must report
      the most recent and relevant sales, and include a thorough explanation of the
      market conditions, the levels of supply and demand, and a reason for the lack
      of recent sales data. (g) Sales Concessions (i) Definition Sales Concessions
      refer to non-realty items, upgraded features in newly constructed houses, or
      special financing incentives. (ii) Standard Adjustments are not calculated on
      a dollar for dollar cost of the financing or Sales Concession. However, the
      dollar amount of any adjustment should approximate the market’s reaction to
      the Sales Concessions based on the Appraiser’s analysis of observable and supportable
      market trends and expectations. The adjustment should reflect the difference
      between the sales price with the Sales Concessions, and what the Property would
      have sold for without the concessions under typical market conditions. (iii)Required
      Analysis and Reporting The Appraiser must verify all comparable sales transactions
      for Sales Concessions and report those findings in the appraisal. The Appraiser
      must clearly state how and to what extent the sale was verified. If the sale
      cannot be verified with someone who has first-hand knowledge of the transaction
      (buyers, sellers, real estate agents involved in the transaction, or one of
      their representatives), the Appraiser must report the lack of verification.
      The Appraiser must make market-based adjustments to the comparable sales for
      any sales or financing concessions that may have affected the sales price. The
      Sales Concessions of the comparable properties are adjusted to typical market
      expectations, not to the specific terms or conditions of the sale of the subject.
      The Appraiser must include an explanation of the effect of the Sales Concessions
      on the sale price of the comparable. (h) Bracketing (i) Definition Bracketing
      refers to selecting comparable properties with features that are superior to
      and inferior to the subject features. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      D. Appraiser and Property Requirements for Title II Forward and Reverse Mortgages
      4. Valuation and Reporting Protocols Handbook 4000.1 851 Last Revised: 11/26/2025
      (ii) Standard Comparable properties must be selected based on the principle
      of substitution, and the analysis will reveal the relevance of that data. Comparable
      properties should not be chosen only because their prices bracket a desired
      or estimated value. (iii)Required Analysis and Reporting In analyzing the comparable
      pool to determine the best comparable sales to display and compare in the SCA
      Grid, the Appraiser must use Bracketing techniques when possible and appropriate.
      (i) Market Condition (Time) Adjustments (i) Definition Market Condition Adjustments
      refer to adjustments made to reflect value changes in the market between the
      date of the contract for the comparable sale and the effective date of the appraisal.
      (ii) Standard Within the SCA Grid, the selected comparable properties may be
      adjusted if they were contracted for sale during a market period different from
      that of the date of valuation. If a market-to-market (time) adjustment is warranted,
      it must be applied to the date of contract rather than the date of closing or
      deed recordation, when the date of the contract is known. (iii)Required Analysis
      and Reporting The Appraiser must provide a summary comment and support for all
      conclusions relating to the trend of the current market and the adjustment.
      (F) FHA Appraisal Requirements for Market Conditions and Changing Markets (1)
      Definitions Increasing Market refers to any neighborhood or market area that
      demonstrates an increasing property value trend. Decreasing Market refers to
      any neighborhood or market area that demonstrates a declining property value
      trend. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT D. Appraiser and Property
      Requirements for Title II Forward and Reverse Mortgages 4. Valuation and Reporting
      Protocols Handbook 4000.1 852 Last Revised: 11/26/2025 (2) Standard An analysis
      of market trends for at least the past 12 to 24 months preceding the effective
      date of the appraisal is necessary in order to establish a benchmark for reporting
      present market conditions. The analysis and valuation of properties to be used
      as collateral for FHA-insured financing must consider and properly address market
      trends in the subject’s market. The Appraiser must determine if the market property
      value trends are increasing, stable, or declining. The final conclusion must
      be based on the reconciliation of all data. (a) Increasing Markets In an Increasing
      Market, positive Market Condition Adjustments should be applied if there is
      sufficient proof of the trend from a credible source based on a thorough analysis
      of specific market trends and as evidenced by a sale and resale comparison.
      (b) Decreasing Markets In a Decreasing Market, negative Market Condition Adjustments
      should be applied if there is sufficient proof of the trend from a credible
      source based on a thorough analysis of specific market trends and as evidenced
      by a sale and resale comparison. (3) Required Analysis and Reporting The Appraiser
      must analyze the broad market area first (neighborhood analysis), then analyze
      the specific market (direct sales comparison), and then report how the subject
      relates to its market area. The Appraiser must provide support for conclusions
      regarding housing trends and overall market conditions as reported in the “Neighborhood”
      section of the appraisal report form. The Appraiser must accurately report market
      conditions and determine when property value trends are increasing, stable,
      or declining. If the Appraiser bases the adjustment on a published source, the
      Appraiser must include a copy of which must be included in the addendum. II.
      ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT D. Appraiser and Property Requirements
      for Title II Forward and Reverse Mortgages 4. Valuation and Reporting Protocols
      Handbook 4000.1 853 Last Revised: 11/26/2025 (G) Final Reconciliation and Conclusion
      (1) Definition Final Reconciliation refers to the process by which an Appraiser
      evaluates and selects from among alternative conclusions to reach a final value
      estimate, and reports the results of the analysis. (2) Standard After the approaches
      to value are completed, the Appraiser must check the data, calculations and
      conclusions. The Appraiser must reconcile each approach to value, and must reconcile
      all approaches into a final estimate of value for the Property. (3) Required
      Analysis and Reporting If the appraisal has no conditions, the Appraiser must
      render an as-is value opinion. If the Appraiser must conclude the report under
      a hypothetical condition or extraordinary assumption, the Appraiser must report
      the issues and requirements as one of the following: • “subject to completion
      per plans and specifications on the basis of a hypothetical condition that the
      improvements have been completed;” • “subject to the following repairs or alterations
      (list them) on the basis of a hypothetical condition that the repairs or alterations
      have been completed;” or • “subject to a required inspection based on the extraordinary
      assumption that the condition or deficiency does not require alteration or repair.”
      (H) Signature (1) Standard The FHA Roster Appraiser must sign the certification
      of the appraisal and perform all parts of the analysis and reconciliation. Appraiser
      trainees or licensees may not sign the appraisal report. A trainee or licensee
      may assist in any part of the appraisal, but the opinions and analysis must
      be performed by the FHA Roster Appraiser. A trainee or licensee may accompany
      the FHA Roster Appraiser on the observations but may not perform the observations
      in place of the FHA Roster Appraiser. The FHA Roster Appraiser must select the
      comparable properties and perform all critical analyses contained in the appraisal
      report. The FHA Roster Appraiser II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      D. Appraiser and Property Requirements for Title II Forward and Reverse Mortgages
      5. Property Acceptability Criteria for Manufactured Housing for Title II Insured
      Mortgages Handbook 4000.1 854 Last Revised: 11/26/2025 must also inspect the
      subject Property and at least the exterior of the comparable properties. (2)
      Required Analysis and Reporting If another appraiser or trainee appraiser provided
      assistance or participated in the preparation of the appraisal, the FHA Roster
      Appraiser must disclose the name of the appraiser or trainee appraiser in the
      report and their role in developing the appraisal.'
  judgment: false
