Mobile Home Appraisals

In the article titled, "Bad Credit Mobile Home Loans", the difference between a manufactured home and a mobile home was examined in detail. Nowadays, when people refer to manufactured homes as mobile homes, they fail to realize the subtle difference between the two. Factory built single family homes, that conform to the code laid down by the US Department of Housing and Urban Development (HUD), are known as manufactured homes. The HUD code, for construction and safety standards, came into existence on 15th June, 1976. Whereas, mobile homes are manufactured homes that were constructed prior to 15th June,1976. Throughout this article, the term mobile has been used synonymously with manufactured.

Steps Involved in Mobile Home Appraisals

Despite conforming to the HUD Code of safety and quality, the per square foot cost of manufactured homes is generally 10 to 35 percent less than the per square foot cost of conventional homes. Hence, appraisal of manufactured homes has assumed a great deal of importance in the face of increasing popularity of these homes. Freddie Mac and Fannie Mae have laid down the rules for appraising manufactured homes. At the least, the appraiser is expected to perform the following tasks:

• Visually inspect the surroundings and the property under consideration
• Determine the approach to be used for real estate appraisal
• Assuming that comparable sales approach is used, the appraiser should collect comparable sales figures for recently sold neighborhood properties
• Check the accuracy of the collected data by comparing the figures against the numbers mentioned in the public records
• Document the results in the Manufactured Home Appraisal Report that can be downloaded from Fannie Mae's website

Mobile Home Appraisals - Choosing the Appropriate Method of Appraisal

An appraisal is an unbiased estimate of the value of the property under consideration using the standard and approved methods. The licensing requirements, for appraisers, vary from state to state. While appraising a property, the absorption rate for a neighborhood is particularly important. Absorption rate is defined as the length of time required to sell off the entire inventory of houses in a given neighborhood. A duration of 6 months or more is indicative of an oversupply of houses in the neighborhood and will consequently lower the price of the property being appraised.

Comparable Sales Approach: Comparable sales approach takes into account the price of recently sold comparable properties. A comparable property is a similar property that is located in the same neighborhood. Comparable properties are also referred to as bench marked properties. The price of the property, that is being appraised, is equal to the approximate average of the prices of the aforementioned bench marked properties. Since no two properties are alike, the appraiser is expected to make the requisite adjustments in order to arrive at the fair market value of the appraised property.

Cost Approach: This approach is suitable for manufactured home owners who own the land in addition to the house. In this case, the cost of the land is estimated using the comparable sales approach or some other suitable approach. The manufactured home is known as an improvement made on the land. From the cost of the improvements made on the land, the cost of depreciation of the manufactured home is subtracted and the resultant is added to the cost of the land.

Income Capitalization Approach: In this case, the value of the property is equal to the net operating income (NOI) divided by the capitalization rate. Specialized vendors provide the market capitalization rates for different types of properties located in an area. The NOI is calculated as follows:

NOI = Gross Rent - Vacancy Charges - Operating Expenses + Operating Income

The relationship between the Capitalization Rate, the NOI and the Fair Market Value (FMV) of the property is as follows:

FMV of the property = NOI / Capitalization Rate

Hence, on dividing the NOI by the Capitalization Rate, one arrives at the FMV of the property.

Since Fannie Mae and Freddie Mac have introduced additional requirements for mobile home appraisals, it would behoove the appraisers to consider supplemental certifications to update their knowledge regarding the appraisal of manufactured homes.