Are you confused about FHA appraisal problems that can derail your loan?
If you are a seller, buyer, agent, or loan officer and are concerned about FHA appraisal problems that can prevent or delay a loan closing then stick around because I’m going to share with you what I have seen as some of the top issues in my 25+ year career as a real estate appraiser.
By knowing what to look for up front you can be proactive in solving problems and hopefully prevent a deal from falling through or a loan closing from being delayed. After reading this I want to hear from you with any questions you have or maybe some tips you’ve learned along the way that can help other readers.
FHA appraisal problems and how to fix them
The list of items an appraiser is asked to check for during an FHA appraisal observation is extensive. In the olden days appraisers were asked to fill out what is known as “VC sheets”, which is short for valuation condition. These sheets covered all sorts of things that can influence the condition and value of a property.
The VC sheets included items that can affect the “soundness, safety, and security” of the property. Several years ago the rules changed such that these sheets no longer have to be filled out and included with the appraisal report, however the appraiser is still responsible for checking the property to note if they exist.
The responsibility on appraisers to call for certain repairs to be made has been taken away now and placed on the underwriter’s shoulders. Appraisers must report certain items within the appraisal report and then it is up to the underwriter to call for the repair or inspection to be made.
So here are some of the top FHA appraisal problems I see most often, in no particular order:
Peeling Paint- Because a large number of homes that are purchased using FHA financing are older, they have problems with peeling paint. I’ve written about peeling paint issues before but it still remains one of the top questions I get with regard to FHA appraisals.
If a home was built prior to 1978 there is a good chance that the paint used has lead in it. This is a safety issue for FHA as it poses a risk of poisoning so it must be removed.
Prior to the appraiser visiting the property, the peeling and chipping paint should be removed from the house and disposed of off site. You don’t want to leave the paint chips on the ground around the house. The surface should then be repainted. While the rule was initially put in place to address homes built prior to 1978 I have seen underwriters require that post 1978 homes also be repainted when peeling paint exists. By addressing this up front you can save yourself a lot of headaches.
Security Bars- Being able to exit a home during an emergency, such as a fire, is a major safety issue for FHA financing. Security bars that do not have a quick release mechanism pose a risk to occupants of the home because if there is no exit they could possibly die.
Most of the security bars I see on homes are bolted to the house and cannot be quickly and easily removed. The quick fix for this is to either replace them with bars that do have a quick release or take them off altogether. Again, don’t wait for the appraiser to call for it because they will. The appraiser will be required to revisit the property and verify they’ve been replaced or removed, so by doing it before they visit you’ll save both time and money.
Bad electrical outlets- Appraisers are required to check at least one electrical outlet per room to make sure it is functioning correctly. We are not required to do any invasive inspections but rather do a simple test to see if the outlet has service.
I use a simple tool that is available at any hardware store. If you’re an agent you can do this simple test yourself before hand to insure no problems exist.
Roof leaks- The soundness of the property relates to the structural integrity of the home and whether it is safe to live in. A roof leak can hamper the soundness and lead to more serious issues such as mold and mildew as well as damaging walls and flooring.
The FHA rule for a roof requires that it have a remaining physical life of at least 2 years. While appraisers are not roofing experts they are required to make a judgement call about its condition.
If the shingles are discolored or curled they may need to be replaced. If you are concerned about this then getting a roof inspection beforehand may answer your concerns, and if the roof needs replacing it is better to do it before the home goes under contract and the appraiser reports its condition to the underwriters.
Wet basement or crawlspace- The area around the foundation must have positive drainage away from the house. This will help prevent water from entering the basement or crawlspace area.
Problems such as those mentioned about roof leaks regarding mold and mildew can be prevented by not allowing water to collect. A vapor barrier is no longer an automatic requirement but may be called for if dampness is noted.
A couple of fixes for this type of problem include adding backfill around the foundation so that water runs away from the house. In addition, there are waterproofing services that can treat the foundation so that water does not enter the basement.
Utilities not turned on- Of all the items I’ve included this is probably the easiest to fix, and least expensive. Many times I will visit a home only to find that none of the utilities are on.
In addition to testing electrical outlets as I noted above, the appraiser is required to test the plumbing, HVAC system, and appliances for correct operation. In order to do this all utilities should be turned on and be operational so that the appraiser can turn on the heater and air conditioner, check the hot water heater, flush toilets, and verify that appliances work.
Again, by making sure the utilities are on before the appraiser visits the property, you can prevent “subject to” items within the appraisal report that require the appraiser to revisit the property which can cost the borrower more money and delay the closing.
Do you have anything else to add about FHA appraisal problems, or maybe something else that you think should be checked? If so leave a comment below and let’s keep the conversation going. As always, thanks for reading.