An FHA appraisal is not a home inspection

FHA appraisal is not a home inspection

appraisal and home inspection differenceI received an interesting question from a reader recently that I thought I would share with you today. This particular situation involved an FHA appraisal and the condition of the property. The buyer did not want to spend money on a home inspection and wanted to know if the appraisal would include the same information. The short answer is that an FHA appraisal is not a home inspection, but today I will attempt to explain in more detail how this all works. If you have further questions feel free to leave a comment below.

Don’t confuse the appraisal with the home inspection

The down and dirty difference between an appraisal and a home inspection are that the appraisal is mainly concerned with the value of the home and the home inspection is concerned with the condition of the home. While an FHA appraisal does include some information about the condition of the mechanical and structural systems of the house it is generally not considered as comprehensive as the home inspection because it is limited to what is readily observable.

The policy of FHA/HUD is to encourage buyers to obtain a home inspection because it is much more thorough than an appraisal. Because the appraisal is more concerned with the value of the property it may not detect all of the problems a property may have.

The appraisal is not meant to detect all of the problems that a home may have. It is not a guarantee that a property is free from defects. The appraisal report is meant for the lender and not buyer or borrower.

The FHA/HUD handbook that the appraiser uses outlines the appraiser’s role as the following:

“One who observes, analyzes, and reports the physical and economic characteristics of a property and provides an opinion of value to FHA. An Appraiser’s observation is limited to readily observable conditions and is not as comprehensive an inspection as one performed by a licensed home inspector.”

The main purpose of the FHA appraisal is to determine the fair market value of the house and to make sure that it meets HUD’s Minimum Property Requirement’s (MPR’s). These MPR’s are mainly concerned with whether the property is safe, sound, and secure but they do not include many of the items that a home inspector would look for.

FHA/HUD recommends a home inspection

An appraisal was never meant to give a comprehensive and detailed analysis of all of the systems of the house. Because of this HUD/FHA provides information to educate the buyer/borrower about the differences between the two. The “For Your Protection, Get A Home Inspection” is provided to home buyers by lenders during the initial stages of getting a loan.

During the appraisal observation, there are items that the appraiser can and will comment on based on what they are and what level of expertise is needed to determine the necessary course of action. Conditions that require an inspection by a qualified professional include the following:

  • standing water against the foundation and/or excessively damp basements;
  • hazardous materials on the site or within the improvements;
  • faulty or defective mechanical systems (electrical, plumbing, and/or
    heating/cooling);
  • evidence of possible structural failure (e.g., settlement or bulging foundation wall, unsupported floor joists, cracked masonry walls or foundation);
  • evidence of possible pest infestation;
  • leaking or worn-out roofs; or
  • any other condition that in the professional judgment of the Appraiser warrants inspection.

As you can see from the list, there are numerous items that an appraiser must rely on the expertise of other professionals. Because of this, the appraisal should never be confused with a home inspection. There are many potential condition problems that could exist with a property that an appraiser is not qualified to comment on and a home inspector or other professional should be used to help determine the cause and possible course of action to correct.

Question

Do you have any additional questions about FHA appraisals and home inspections? Leave a comment below and we’ll keep the conversation going.

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Comments

  1. Thank you for clearing that up. That is a question that I have received as an appraiser on occasion and now I can just refer to your blog post.

  2. Nice job Tom. There is definitely confusion on this point. Just today someone was remarking to me how the appraiser missed some damage in the crawl space. The thing is though appraisers don’t do a full inspection of the crawl space. We have to consider that appraisers aren’t going to observe everything and they don’t carry expertise in every facet of the house too. Sometimes buyers skip a home inspection or other types of of inspections that might have pointed out different defects. I know a home inspection I had on a house I almost bought once was paramount in helping point out some issues (and I’m so glad the deal fell apart). 🙂

    • Thanks for sharing your experience, Ryan. The home inspection has become such a vital part of the home buying process and I remember when I first started appraising not many people got a home inspection, but over the years this has changed. A home inspection will go in more depth than the appraisal and I recommend them even for new construction as there can still be issues that need to be addressed before buying.

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