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.

Ignoring FHA Issues Before the Appraisal Can Cost Time and Money

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.

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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Comments

  1. I’ve had buyers go in and fix some of these issues prior to closing and at their own expense in order to be able to get FHA approval. It’s risky, but it has worked in the two times I’ve had to deal with it.

    • Thanks for sharing, Gabe. I have heard of buyers doing this as well. Some foreclosure properties do not qualify for FHA financing due to their condition so the buyers took it upon themselves to get it in FHA condition. I’m glad it worked out for your clients too.

  2. Is FHA still a big factor in your area, Tom? It’s been shrinking in my area.

    • Ryan, it has decreased compared to years ago. In all honesty it seems lately that even on conventional loans lenders are requiring a lot of these same things done at least for the condition of the home.

  3. Hey Tom,

    Good post. I’ve run across several homes in the past where the garage door opener didn’t work. FHA guidelines require it to work or be removed, including the mounting brackets. Otherwise, I see the same things you do.

    • Good one, Joe. I guess that falls under the “if it’s broken, it needs to be fixed” category. Thanks for sharing.

      • Mark Ziegler says

        Hi Tom,

        While the “kinder, gentler HUD” has done away with things like handrails, it certainly hasn’t done away with the discretionary “health and safety of the occupants and security of the dwelling”. One that comes to mind is a patio door to “nowhere” (e.g. ledger board is there and they intend to build the deck later). HUD would require some form of acceptable permanent fixture not allowing egress until an acceptable stoop (deck, etc.) is constructed.

        I could come up with a laundry-list of items I’ve noted over the years due primarily to safety. I’m not nit-picky, but if it’s something so obvious that were something to happen and I’d likely wind up on the wrong end of litigation, I’ll point it out.

        I’d just advise Realtors to note the obvious when conducting listing inspections and use a little common sense.

        • Thanks for your input, Mark. HUD can be a little vague on some things but I have found that if it is required by local code then HUD requires it as well. Common sense certainly does help!

Trackbacks

  1. […] adds time to the purchase contract and which can delay closing.  Tom Horn points out ten areas which are looked at by FHA appraisers.  By making sure those areas are in good condition beforehand the homeowner can help keep […]

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