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.
Bonus Tip
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.
Question
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.
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Why is appraiser requiring a range hood over the gas oven? It’s right in front of the only kitchen window.
The only thing I can think of is that it may be required by the local building codes. You may want to check with them. If there is one there but it does not work then that would also require one to be installed that works.
Hi
I am very frustrated. I made an offer and I had an inspection. I already agreed on the repairs to be made. I only new the next thing was an appraisal but never another inspection. I am Now going to throw 400$ down the drain and expect the home owners to make additional repairs needed not agreed upon? Why wouldnt the FHA program sac me trouble and money by doing the appraisal 1st before I throw away a $1000 bucks
Thanks for the comment James. Sorry to hear about your situation. One of the things that I strive for is to educate real estate agents on what type of repairs need to be made if a home is to be sold with FHA financing. To be honest, the agent should have been aware of the required repairs and let you know about them on the front end of the transaction so that you could have included them with the repairs the home inspector required. I have written numerous articles on what FHA requires before it will finance a home and hope that agents will become aware of them so this doesn’t happen to other buyers.
Yeah, Tom is exactly right Mr James. Your agent should have made a big deal about any inspection concerns. I’ll give you an insider tip, the sales agent can choose either a very detailed or very generic home inspector. There is no national licensing for home inspectors, although some states have that. In CO, all you need is a few gadgets and a simple business plan, and you’re a ‘home inspector’. I’ve ran across some great ones, but many are just not worth the money. The FHA program is in place to keep home buyers from dealing with forclosure due to unexpected repair costs in the early periods of the loan. Your $400 went to good use, because it kept you from landing in such a scenario. FHA did not sack you, the lender did. Some lenders walk right past repair issues with 203b and 203k style lending packages. All you need to do is demand the appraisal be made subject to repair conditions, roll your loan out, and then use the 3b or 3k approach to finance those repairs or just pay out of pocket once you’re in place as the new owner. What some mb’s won’t tell you is they are not qualified to offer those packages. Who makes the repairs pertaining to the appraisal demands is at the discresion of the interested parties. If they won’t pay for it, you can still acquire the home, if the repairs are not beyond the technical cost threshold of $5k worth of repairs. That’s the standard rule for mortgage insurability; $5k or less of repairs, you can still roll a 203k on the home, and secure the purchase opportunity. Anything more than that, and you should take a step back as a consumer and ask yourself if it’s worth it. Could be a money pit. If it’s less than $5k, just wing it and land the deal. Real that fish in. Presuming the appraisal cost was to secure the deal is misdirected thinking. The appraisal cost and service is there to help you line up a secure deal. Nothing more, nothing less.
Hi Tom, I have seen where missing handrails on steps indoors and outdoors can be an FHA lending issue. Thanks for the good info here!
You are correct Joyce, because it could be a safety issue. Thanks for sharing!
Thank you for all the great FHA problems and tips Tom. Homeowners, real estate agents, and appraisers can all use this information.
Thanks Gary.
Nice list, Tom. I find in my area things like smoke detectors and CO alarms are some of the most constant (but smallest) offenders. In California CO alarms are required, so FHA bows to local code on that issue. I’ve seen all of the above as you mentioned too.
I noticed that California does have the CO requirement whereas our area does not. It’s interesting to see what goes on in other parts of the country.
Good info for the general public, Tom.