How knowing the rules of a final inspection can save you time and money

How knowing the rules of a final inspection can save you time and money

I thought I would write a post this week about a topic I saw in an appraisal forum. That topic revolved around a final inspection and how the appraiser was accused of “nickel and diming” the owner to death. This issue revolved around the appraiser needing to visit a home multiple times to verify that repair conditions in an appraisal were met, or in other words repaired. When agents and sellers know the rules of a final inspection they will better understand their role and how doing it right can save them time and money.

What is a final inspection?

A final inspection occurs whenever an appraiser must revisit the property that they previously appraised in order to verify if property condition items that were a part of the assignment have been met. These property condition items are most likely based on lender or client guidelines as well as governmental requirements in the case of FHA or VA loans. These items may also be requirements that are part of a sales contract.What you need to know about final a final inspection

Examples of condition items

Some common examples of condition items in an FHA or HUD appraisal may be the correction of peeling paint or proper operation of either appliances or mechanical equipment in the house. Peeling paint is common in older homes and prior to 1978 paint was made with lead in it. The lead in the paint could result in extreme sickness or even death if ingested. Because of this all FHA appraisals must be conditioned on the removal of any peeling, chipping, or flaking paint present on the house or accessory buildings on site.

Another example of a condition item might occur during a home purchase whenever the contract calls for the installation of new appliances, HVAC unit or water heater. These are only random examples I have listed here but they are typical things I have seen in the past. If the sales contract price reflects the installation of a new HVAC unit, but it has not been installed yet at the time the appraiser visited the property, then the appraisal would be made “subject to” the installation of the unit, meaning that whenever the unit is installed then the final opinion of value shown in the appraisal will be valid. The lender wants to know if this has been done so that the value of their collateral is what is reflected in the appraisal.

How NOT to be “nickel and dimed” to death

Final inspections, and correction of condition items in an appraisal, are not uncommon so it pays to know what needs to be done to satisfy the requirements. I believe that the biggest problem that exists is that the buyer and seller, or their agents, may not know exactly what has to be done so it becomes a guessing game until all the requirements are met.

The items that need to be corrected as part of the appraisal assignment will be listed within the report, so this is where your “checklist ” of things to do should come from. The loan underwriter will make the final determination as to exactly what needs to be done so they should also be consulted. If the required items have not been completed when the appraiser is asked to do the final inspection then they will be required to go back out a second time (or 3rd, or 4th…) until the requirements are met and each visit will cost the borrower money so it is important to get it right the first time.

The appraiser typically calls the real estate agent to verify the items have been completed before doing the final inspection so this is a good time to go over what was done and to make sure it meets the requirements of the appraisal. If this is done then a second trip will not be necessary.

A good practice would be to speak with the appraiser (yes agents you can do this) and underwriter after the appraisal is completed to make sure you know exactly what needs to be addressed during the final inspection. This will cut down on the time and money involved and make everyone happier.

Question

Do you have any other questions about the rules of a final inspection or requirements that are noted in an appraisal? If so leave you comments below and if you know of anyone that would benefit from the information contained in my blog please pass it along to them.

If you liked this post subscribe by email (or RSS feed). Thanks for visiting.

 

Comments

  1. We have an appraiser that is refusing to do a final inspection on a “subject to” appraisal because he put in the addendum that an invoice to the lender showing the work was completed is all that is needed. In my experience there are 2 choices for appraisals, either as is, or subject to with a final inspection once the work is completed. Is there ever a case that a final inspection is not required. This is a conventional loan. The electrical box needed to be replaced.

    • I have seen where information provided by another party can suffice as proof that the work was done. I think it would be up to the lender/underwriter as to what would be acceptable. If the lender wants the appraiser to go out then they should or maybe another appraiser could do the final to verify that the work was done.

  2. Rudy Duplissis says:

    Does the appraiser have to do the inspection if it’s outside paint. Can the appraiser send out an assistant to take pictures

    • It will depend on what the lender requires. They may want to the original appraiser to look at it, but if they do not have a preference then I would think that an assistant should be adequate as long as they know what to look for.

  3. Great post topic Tom. I’m speaking in a real estate office tomorrow and this is a topic that often comes up. I’m thinking I should add a segment on repairs rather than just waiting for questions. Thanks for keeping my brain working.

    • Glad I could provide some value for you Gary and good luck with your talk. I wish more appraisers would take time to educate agents and consumers about what we do.

Speak Your Mind

*

 

Sign up and get valuable content!

  • Get local real estate market data
  • Learn valuable information from a seasoned appraiser
  • Find out what adds value to your home

I respect your privacy. Your information stays with me.