A residential home appraisal is mandatory and required for all home buyers and refinance mortgage loan borrowers. Most homes are priced right and many seller’s realtors do an extensive market analysis on comparable properties before they recommend a selling market listing price to their sellers. Low home appraisals are not common but do happen and this can cause a delay in closing on the home because three things need to happen:
1. The seller lowers the purchase contract to the appraised value of the property .
2. The home buyer needs to request a home appraisal rebuttal from the mortgage lender to request it with the Appraisal Management Company.
3. The buyer and seller needs to negotiate a new purchase price on the home somewhere in the middle of the appraised value and purchase price.
There are other home appraisal issues that do come up where the property does not meet FHA and/or HUD property guidelines. Examples of these issues are mold issues, broken windows, peeling paint, non functional items such as toilet, electrical, plumbing, and HVAC systems. FHA appraisals are stricter than Conventional loan appraisals where it requires that the subject property be secure and safe. All appraisers will require that the subject property is habitable and ready to move in condition.
Defects Found By Appraiser
If the appraiser notes defects on the home, the defects needs to be corrected and a re-inspection will be required by the same appraiser. Examples of defects on the subject property include non functioning systems like the garage door, plumbing, electrical, HVAC, broken windows, peeling paint, mold, and other items deemed as unsafe and not secure. Items such as an older roof which has at least 3 years of life remaining and where there is no leakage is fine. However, a leak from the roof or broken gutters need to be corrected. There is an additional cost for the appraiser to come back out and sign off on the repairs.
The cost of the repairs can be paid either by the seller and/or by the buyer. In the event if the seller does not want to pay for the repairs, the buyer can pay for the repairs as long with the sellers consent in giving them access to the home for the repairs to be done.
Cases Where Repairs Cannot Be Done
Many times when a home buyer purchases a foreclosure, the subject property can have many deferred maintenance where it will not pass the minimum standards of the appraisal. A substantial amount of repairs may be required. However, if it is a bank owned property, the bank may not want to do any work on the property and sometimes will not grant access for even the buyers to do the repairs. Also, all utilities needs to be on for the home appraisal. This can create a problem during the winter time where many homes are winterized and all utilities are shut down. Before proceeding with the mortgage approval process, home buyers should make sure that they will not encounter a situation like this where the sellers do not cooperate. There is no way you will get a clear to close on a residential mortgage loan if the appraiser notes that the subject property does not meet minimum FHA and/or Fannie Mae home appraisal standards. If you are purchasing a bank owned property, many banks will not pay for repairs and sell the property as is. however, many will let the home buyers do the repair and grant them access to the property.
HomePath properties are homes that are owned by Fannie Mae. Anyone can purchase a HomePath property. There are HomePath mortgage loan programs which are conventional mortgage loans which require no appraisals and no private mortgage insurance. HomePath properties can have deferred maintance if you are purchasing the property via HomePath loan because no appraisal is required. HomePath loans are available for owner occupied single family homes, second/vacation homes, and investment homes. You can also purchase a HomePath property via other loan programs such as FHA loan programs, VA loan programs, and traditional conventional loan programs.
Appraisal Review By Mortgage Lender
Just because you get an appraisal that has been valued at the purchase price does not mean that everything is alright. Almost all mortgage lenders have an appraisal review department where the appraisal gets reviewed by an inhouse appraiser to make sure everything on the appraisal report is justified to protect the lender’s collateral. Most of the time, the appraisal review goes smoothly and it is just a matter of formality. Unfortunately, there are times where the lender’s appraisal review department does not agree with the appraisal and might order a second appraisal. For example, if the comparables listed on the home appraisal are not within a one square mile radius, the appraisal review underwriter may question that. I had a recent case where the subject property was on five contiguous lots and the appraiser needed to go 4 miles to get comparables. On this case, the mortgage lender requested a second appraisal and everything came out okay. There are other times where the appraisal comes in at the purchase price value but the internal appraisal review underwriter will not agree on the value and lower the value. There are mortgage lenders that are notorious in slashing the appraisal value to a lower value because they do not agree with the appraiser and the purchase price.