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.


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.

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  1. Hi on appraisal report where i can find what need to be done before final inspection this is new construction and buyer and builder says everything is done. i am mortgage broker

    • Thanks for the questions, Amit. If the property is new construction then the appraiser was provided with a scope of work that outlines what the builder will do. The appraiser will note within the appraisal report what the scope of work showed as far as building materials, features, square footage and rooms. There will not be a “list” for new construction, especially if the home is proposed. The appraiser will need to verify that the home is actually built and that the same house shown on the plans, having the same finishes as outlined in the scope of work and list of materials, was constructed. If the home was under construction then the appraiser will note the items that were not finished as of the date of the inspection and condition the appraisal on the completion of those items.

  2. Chelsie Robinson says

    My husband and I were in the process of purchasing an house. An FHA 1004 was completed. It was noted that chipping paint in kitchen and on garage needed to be repaired. The seller did not want to pay and was going to back out. We paid $600 to fix the issue. The 1004D was done by another appraiser and he is now saying there is damage to the wood siding of the garage. A contractor was called for a quote and it is almost $6000 to repair. Sellers refuse to pay, understandably, and my husband and I do not have an extra $6000. So we have to back out of the house. But now my question is why did the first appraiser not note or list anything about the damage? She only showed pictures of the trim that was flaking. And listed “flaking paint on kitchen ceiling and garage”. My husband and I would have walked away 4 weeks ago if we knew the damage was over $6000. We feel ripped off out of $600 because the appraiser who completed the 1004 missed a bunch of stuff. What are our options?

    • The only thing I can think of is that the original appraiser somehow missed the siding issue, however with the cost being$6,000 that seems kind of hard to believe. Since the first appraiser missed it I’m questioning whether it was something that needed to fixed per FHA guidelines. Does the repair issue fall under the three S’s of safety, security, and soundness? Also, during a final inspection the appraiser is only suppose to verify whether the items noted in the original appraisal report that required repair were actually repaired. Just something to think about.

      • Thank you. So what are my options legally?
        We Feel blindsided by the final inspection and having to walk away from the house after almost 2 months and putting $600 into it ourselves since that was what our realtor and mortgage broker told us needed fixed, I even confirmed with them before hiring someone to fix the two things listed. Can the first appraiser be held responsible since she grossly missed major items?

  3. Sheryl Brown says

    I’m getting push back from the lenders regarding leak repairs. I always request a report from the professional who did the work when I receive the order for the final inspection. Going back to the property to view a stain that’s no longer there is not evidence of that the leak was repaired. What are your suggestions?

    • I would have to agree with you. I would at least require the invoice for the work done and include that with the pictures. You will be the one they will come back to if it turns out nothing was done. The lender will not be responsible but you will since you provided a report stating that the work was done. I would stick to my guns if I were you. Good luck.

  4. Sheryl Brown says

    I made an FHA appraisal subject to inspection by engineer due to previous soil subsidence. Now I have the final. There were not repairs needed per the engineer so a return to the property for photos are not necessary. The lender wants statement that the subject meets MPR. Can this be done on 1004D without inspections? Thanks!!

  5. difference between 1004D update and 1004 final inspection- and validity

  6. James Yannaccone says

    Great post and information Tom! Wanted to get your opinion on a final inspection for new construction when the exterior is stucco and only painted on 2 sides. The day before completion it snowed heavily and now it is too cold to complete the painting, but of course the lender, builder and listing agent are telling me this has no impact on the value or original appraisal. I stated that the plans and specifications from the original report did not call for a half painted house and it could impact marketability until completed. Do you agree or should I just state this as a “punch list” item and call it done? Thanks.

    • I agree with you. I believe there is a marketability issue, however, I also think this could also be covered as a punch list item. If you believe that there would be a significant impact on the value I would state that in the final inspection to cover yourself. I’ve heard situations like this where the appraiser let it pass and years later they come back and the item that was supposed to be completed has still not been done.

  7. Casey lauterborn says

    I’ve recently had a Final Inspection accomplished that came back with the appraiser wanting a garage safety switch not only fixed but now wants the electric opener repaired as well. Not a big deal at all honestly. He also added in repairs he wanted done to the pool to get it to functioning condition as it is right now not functioning and will require work to get it back up and running. This was never in the original appraisal as one of the items that required repair. There was a addendum for it but the bank and my lawyer both said I just needed to get a addendum to the contract stating the sellers credits was towards closing not towards the unfinished pool. Again the pool was never in the list of things needing to be repaired. Can he just add additional things during final inspection that were not required the first time around? this is for a FHA loan also and the bank did not list the pool as one of the required repairs either. any help is greatly appreciated, Thank you!

    • It is quite possible that this is required. It’s hard to make comments on a property I know nothing about but if there were new items or items not considered on the original appraisal, and they are FHA requirements, then they would need to add that to the things that need to be done.

  8. A lender has asked me to complete a final inspection 1004D for someone who can’t or doesn’t want to complete a final inspection. This appraiser just put punch list items. No specifics. Also this appraiser lives pretty far away and I personally believe they just don’t want to drive that far. As stated, I looked through the appraisal to see about what was not completed and there was nothing noted. Also this appraisal is not even close to the quality of my company and sales are all the same builder sales within the neighborhood. I am truly not just wanting to stick it to this appraiser, but feel I am exposing myself to needless liability if (high likelihood nothing will come of it) this goes south. Thoughts or advice?

    • I personally would not complete a 1004D (Appraisal Update/Completion Report) on a property that I did not personally appraise. There may be some specifics of the property that you are not familiar with which could expose you to increased liability.


    I have a question for you in regards to a final inspection for a new construction home. The appraisal is made subject to completion. How do you treat a final inspection on new construction if say such items like touch up paint, or a piece of trim, etc. need installed? A few small items. The builders contract has a clause stating ” closing will take place after Substantial Completion(obtaining a Certificate of Occupancy).” So, with this statement in the builders contract and the buyer has signed this contract and agreed to it, how would you treat the above items : like touch up paint, or a piece of trim need installed or similar small detail items for a final inspection if they are not yet complete? Scenario two: What if the builder now has a certificate of occupancy, and the items are still not complete. Would you mark the final inspection report complete since that is all the contract requires, substantial completion and a certificate of occupancy? appreciate the input.

    • Thanks for the question, Shane. Whenever I have done a final inspection and there is this type of scenario I state that there are some “minor punch list items” that still need to be complete but the original value is recertified. The bank wants to know if the subject is complete and if the value has changed. Minor items like you mentioned will not typically have a significant negative effect on the value of the home, however, I like to make the lender aware that they exist and they can make the final call.

  10. Sherri Zimmerman says

    I did an appraisal for a home as is. Noted there were items to be repaired after closing per the contract. The home has closed, and the bank wants me to do a final, which includes roof repairs which I don’t feel is within the scope of an appraisal or my expertise. They have provided lien waivers. Shouldn’t this be enough to prove the work has been completed? Thanks.

    • You are correct, appraisers are not roofers. I would require a statement from the roofer, on their letterhead, that states the repairs are complete. I’m not sure if lien waivers provide all the necessary information but that would be your call. Good luck!

  11. Danielle Scipione says

    We were told we were not allowed to do any other peojects in the house, but we got excited and did some. How much trouble will we get into during the final inspection?

  12. 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.

  13. 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.

  14. 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.

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