Real Estate Appraisal Insight From the Expert

Required Repairs and Inspections for an FHA Appraisal

With the popularity of FHA loans recently come a lot of questions from my clients. Basically, they want to know what home issues are cause for further inspection or repairs. Since the appraisal is what it is, I can’t help if the house has an issue that needs to be repaired or addressed. In cases like these, I do what HUD tells me to do. But even with their guidelines, I’ve encountered plenty of other situations that are not or may not be as clear cut.

There are a ton of reasons why a loan could be rejected by HUD, and an Appraiser might disclose any number of those issues, but that decision is not up to the Appraiser. His job is to simply state the facts and observations so that HUD can make that decision. BUT, the Appraiser is required to call for additional repairs or inspections for certain observations.

From a 10,000 foot level, an FHA appraisal is done in a very similar way to non-FHA ones. But there is definitely a lot more attention paid to the home and a lot more judgment placed by the Appraiser. As an example, for a non-FHA loan, I might find that there is a broken window. I would mention the broken window and in my appraisal I would put an estimated cost to fix that window. Adjustments are made accordingly and that’s that.

But with FHA appraisals things that require an added inspection or repair typically fall into three categories that are known commonly as the “Three S’s”

Safety– Is the home going to preserve the safety and health of its occupants?
Security– Are there conditions of the home that will preserve the continued marketability of the property?
Soundness– Is the home structurally sound?

Now with this simple guideline come a ton of “what about” questions because no two properties are the same, but here are some no-brainer required repairs:

Inadequate access/egress from each bedroom directly to the exterior- so security bars on the windows, or no window at all on a bedroom are definitely bad things. If it’s 2AM and there’s a fire- can people get out of the house quickly?- Automatic repair required

Leaking or Worn out Roof- roof leaks cause water damage, cause structural integrity issues, cause mold, cause termite infestation, etc. If the roof is leaking, it needs to be repaired. Also, if the roof already has three layers of asphalt shingles and has problems, then the old roof needs to be removed instead of patched. If the roof has less than 2 more years of life left, then don’t be surprised if the Appraiser calls this out too

Evidence of Structural Problems- is the foundation lifting because of a nearby avocado tree’s roots? That’s a perfect example of evidence. The Appraiser would call for a structural engineer or home inspector to determine if it’s really an issue.

Defective Paint Surfaces when home was constructed prior to 1978. We’re talking lead based paint. If the tax records show that the home was built prior to 1978 and there is flaking, peeling or other signs, then it will be called out for repair. Of course the next question is- “What exactly needs to be done? Does the whole house need to be painted?” The quick and dirty answer is NO. But the repairs must be good enough where the Appraiser will not see any signs of defects.

Pretty simple stuff so far, but what about all the “What About” questions. Here’s a list of some that I’ve encountered and the course of action:

Swimming Pool is empty, or green or otherwise not up to swimmable condition- We’re talking about a safety issue here on several fronts- a green pool is a breeding ground for mosquitoes. A green pool is a place where people can fall in and not be seen. An empty pool is one where a person can fall in and break their neck. The swimming pool must be filled and functional or it will be called out to be repaired or otherwise rectified. But what is “otherwise rectified”? They can fill it with dirt.

What about a pool barrier? That’s more of a city code requirement. If it’s required locally, then it’s required by HUD. The Appraiser should know if it is required and report it accordingly and require necessary repair.

Fence missing or broken between neighbors when a pool is present? Wow, now we’re getting complex. Two issues here- most importantly is that the subject home isn’t very secure if someone can go through the neighbor’s backyard to get into the subject’s backyard. Also, despite the pool barrier, the missing fence is simply another step a person would have to take in order to get into the subject yard, get in the pool and drown. Sounds depressing, but drowning is a bad thing and HUD doesn’t like the idea of homes being potential death traps.

Possible Termite Damage- We’re talking about Soundness here. Any signs of termite damage require a termite inspection. If any structure on the subject property have wood that is touching the ground, then that requires a termite inspection. Or if the site isn’t graded properly and water can pool by the base of the house, that’s another obvious structural consideration.

Power is Not on in a Vacant Home- Well if it’s not on, then that’s a pretty significant system that can’t be tested. So either way, the home needs to be inspected when it’s on. That’s basically going to be something that the Appraiser can check himself.

Broken Windows or Exterior Doors- Security and Safety concern here for obvious reasons.

The Biggie- With so many foreclosed homes, it’s not uncommon to find a home with no kitchen… I mean yes, there’s a kitchen room, but the room has been gutted- cabinets, countertops, sink, appliances- just flat out gone. Well this falls into the whole Security blanket as marketability. You expect a kitchen in a house so it needs to be there. But what is required? The rule of thumb is “market standards”. You basically have to fill the space with what is typically found in a kitchen- which includes sink, countertops and cabinets. Same goes with the bathroom. If you have a 2 bathroom home and one is completely non-functional, then the appraiser would be “As Is”, but if you have no functional bathroom, then the house is not livable as you need a bathroom.

Hopefully this exercise has cleared things up a bit, but we all know that it probably only opens the door to more questions. Remember, each locality is different, so this is by no means a definitive list, nor does it mean that there is only one solution to each of these situations. Check with your underwriter to see what they specifically require as it may be very different from state to state.

Give us a call at 480-544-1217 with your unique FHA question or visit our website at http://www.advantageappraisalsllc.com/. I look forward to working with you.

Sincerely,

George