Why Agents Should Identify FHA Issues Before The Appraisal

Ignoring FHA Issues Before the Appraisal Can Cost Time and Money

We’re a microwave society. We want things done fast so we can move on to the next thing on our to-do list.

The home buying process is no different. I’ve read that the goal in the mortgage business is to make it as quick and easy as it is to buy a car.

I tend to think that while there is always room for improvement, the real estate business will always take a little more time due to the very nature of what needs to be done. There is financing, title work, surveys, home inspections, and appraisals to name a few, and these take time.

I’m not qualified to speak on behalf of what could be done to speed things up with the other pieces of the real estate puzzle but I can speak about the appraisal process. One thing that comes to mind immediately regards the FHA appraisal process.

This is top of mind for me because I just experienced it in an assignment I recently completed. Being familiar with what appraisers look for during an FHA appraisal can reduce the need for a re-inspection, which can take more time and cost the borrower more money.

Today I’m going to share the Top 10 items that agents should be aware of before the appraiser is contacted to do the appraisal. If these things are covered the appraiser will not need to do a final inspection which will save time and money. This can aid in getting the loan closed faster, which will make the lender and buyer/client much happier.

Let’s take a look at the top 10 items that an agent should be aware of before the appraisal is ordered.

Top 10 FHA Checklist

1. Electricity must be turned on – The appraiser is required to verify the operation or condition of multiple items that require power. If electricity is not turned on the appraiser must make the appraisal subject to an inspection after the power is turned on. This requires an additional visit which increases the cost to the borrower and can possibly delay the closing.
2. Water must be turned on – Like the electricity, the water must be turned on so that the operation of the faucets, toilets, and water heater can be verified. Appraisers check for water leaks, operation of the toilet, and operation of the water heater as required by FHA/HUD.
3. Gas must be turned on – Similar to electricity, the gas must be turned on as well if it powers equipment that the appraiser must check. Some furnaces, water heaters, and stoves are gas-powered so the gas must be on in order to check their operation.
4. Appliances must work – If an appliance is present it must work. If it does not work it must be repaired or replaced. Appliances are not necessary, however, if the comparables have appliances and the subject property does on then an adjustment will be made for the difference.
5. The heating and cooling unit must work – The heating and cooling system must work properly. While there is no requirement to have a cooling unit it MUST have a heating unit to help protect the plumbing in cold weather.
6. Peeling paint must be removed – One of the most common problems in older homes is that of peeling, chipping, and flaking paint. If the home was built prior to 1978 there is a chance that lead-based paint was used. Because lead paint is poisonous it must be removed using HUD-approved methods. This should be taken care of before the appraiser visits the property to avoid any delays.
7. The water heater must work – The water heater must operate properly by providing adequate heated water. As noted previously, the electricity or gas must be turned on to provide fuel or power to the water heater. I have run into situations where the gas or power was on and the water heater worked, however, the breaker box was turned off. It is important to make sure the breaker box is turned on in advance of the appraiser’s visit to allow time for water to heat up. If the appraiser must turn on the breaker box when he or she is at the property there will not be enough time for it to heat up and the appraiser will need to make the appraisal subject to a subsequent inspection to allow time for the water to heat up.
8. Windows must be operable – In order to provide an easy exit from the house during an emergency at least one window per room must be operable. It must open enough to allow a person to exit to the outside. The only exception to this rule is if there is another exit in the room to the outside, such as a door. If there is another exit to the outside the window does not have to open. If security bars are present and a window is the only exit then the security bars must have a quick release so that occupants can exit the home.
9. Electrical wires – Live electrical wires cannot be present. This could endanger the health and well-being of the occupants. If wires are exposed they must be covered to protect occupants from getting electrocuted.
10. Electrical outlets must work – The appraiser must check at least one electrical outlet per room to verify that it works. It must operate properly, have a cover plate, and present no danger to the occupants of the home. Cover plates are so cheap it doesn’t make sense not to have them covered considering the higher cost of an additional final inspection.
    Bonus
11. Handrails-  Handrails will need to be installed if there is a safety hazard that needs to be corrected. While there is no hard and fast rule it makes sense that a guideline we might use is to ask ourselves if we would feel safe if a toddler or senior citizen would be safe walking up or down the stairs. If the answer is no then it might be safe to assume that handrails need to be installed. They will also need to be installed if they do not meet the local building codes. You can read more about this here. (edited 6/2023)

Question

For my appraiser friends, can you think of any other items I have not mentioned? I was trying to only consider those things that an agent should be aware of and make sure is done to avoid an additional final inspection.

If you are a real estate agent and have a question about something that I have not mentioned feel free to contact me. You might also want to check out agent Bill Gassett’s post about FHA and VA requirements if you are new or just want a refresher.  As always, thanks for reading.

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