What to Tell Borrowers in an Inspection
It can be hard to know exactly what to tell a borrower sometimes in an inspection when it comes to repairs. For example, if you see chipping and peeling paint in an older home, and it is an FHA inspection, do you let the homeowner know that there is a good chance that their lender will ask them to repair it? While it is probably not a big deal either way, I see both pros and cons to both sides of this issue.
If the borrowers seem kind and agreeable, I typically will tell them about the repairs. It gives me an opportunity to explain exactly what needs done so I do not end up coming out a third or fourth time. Additionally, it gives the owners a heads up so they are not surprised when the request comes back from their lender.
As I am walking through the home, if the borrowers seem hostile or defensive (it happens), I usually do not tell them about the repairs. My reasoning for this is thatI have encountered owners who have gotten angry when I mention that they may need repairs. They get upset because they think I am being difficult by pointing out a problem with their home. As you know, we as appraisers are really just the messengers when it comes to these types of repairs, so this is not a situation that I want to find myself in. It is sometimes better coming from the lender.
Ultimately, it probably does not really matter whether you tell a homeowner about possible repairs that may be required. I typically try to read the borrowers and go with the option that I think will produce the best reaction.
For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 126 Telling Borrowers About Repairs
- Be Nice or Be Quiet - July 2, 2021
- Being Liberal with Values Hurts Homeowners - June 28, 2021
- Why Are Appraisers Banned? - April 15, 2021
I generally never tell the borrower anything, mostly because I never see the borrower (unless it is a refi). If the seller or the agent is at the property and in a good mood, I might tell them so we are all on the same page. It amazes me how much some agents will complain if you tell them about a condition. I had a house that did not have a furnace and the agent did not even know. Lazy, lazy, lazy. Or, how about they ever popular question: “when did that become a condition.” Answer: “30 years ago.”
If the borrower had a home inspection, should the appraiser be given a copy of the Inspection Resolution, considering it is an amendment to the contract? Also for an FHA appraisal, do my fellow appraisers include form HUD 92564-CN “For your Protection: Get a Home Inspection” as part of the appraisal? I include it in every FHA and USDA appraisal.
Sure I do, in most cases. I don’t say the lender will require the repairs for sure but there is a good chance. I had a homeowner volunteer repair issues to me yesterday, she was going for a home equity loan.
I do. Otherwise it def doesn’t get fixed properly. Ex. Just bc I only put 4 pictures on the report of peeling paint does not mean that you don’t have to fix the other 50-60 areas of peeling paint. I called for repairing all of the defective paint surface not just the areas in the pictures.
?…I can see the borrower being present with the appraiser during an inspection in a refi situation, but are buyers/borrowers actually present during a inspection for purchase?
Will you actually circumvent your lender/client and contact a buyer/borrower to let them know of repairs?
Lane Leppink I would point it out to the Realtor if they were present. If not, then they will find out once the report is sent in.
Absolutely Not For VA APPRAISALS. I do if asked on Conv and FHA.
Yep. I’ve actually had people run to Home Depot and then make quick repairs while I finish/wait
. I hate wasting my time and their $150 on final inspections. One of the biggies here is having the hot water heater double-strapped, which is an easy fix. Lender requires photo.
Yeah it’s such a hassle. I do the same thing for carbon monox alarms, required here in CO, also always want a photo of that. If there is too much though, that’s when I call subject to. Sales are easier to manage because if there is still a few days left I can call the agent to mobilize for a quick turn. Sometimes they don’t mind waiting though, there are all types of possible scenarios. Sometimes they prep the home and miss something. Other times they just send it out there to market and wait to see if the appraiser and/or inspectors call out items or not. If they push the limit I have no problem running a $150 final.
For the article topic, I keep it simple during inspection and write both a brief and then detailed explanation of why repairs were called or assumed away as not being necessary. Because I spend more than 10 minutes racing in and out of a property, I usually have an adequate repore going that I don’t have to be worried about being straightforward and honest about everything. It’s better they get upset right then and there than complain later so I disagree with the article writer on this point. Not everyone is geared for volume with a million lawyers at their disposal.
I tell them on refinanace situations. If not things get lost in translation and repairs are not made correctly or items get left out. Especially the peeling paint issues.
I set the table during the appointment call, and again before I start my inspection, thus there are no surprises when issues are found. I don’t track people down (vacant property), but anyone and everyone present at the time will get specific instructions on how to fix the issue. Most important, I also inform the owner and or agent to contact me immediately when such repairs are done. Are the repairs exterior only (paint), can I get pre-approval from the owner/agent to go any time post notification such repairs are done (gate unlocked)? Knowing its done, I can work it into my schedule, contact my client to order the 1004D (They often forget), and at times be ready to submit within a few minutes or hours of when it officially gets ordered. Hell, when you call your client to have them order the 1004D, ask your client if they will pay a rush fee to have it back within a few hours (your done already / hero time).
The last bit of advice I would give, is to keep the new file (1004D) in active status (yet to be seen) so again you can be reminded to work it into your schedule.
Seek the truth.
This is what is wrong with residential appraising. If you smell something wrong, you call for an inspector to make these decisions. Appraisers who think they are inspectors is nuts. Appraisers should assume everything works unless they see something funny. Then call for an inspection and let someone else decide who has a license to do so. FHA has enabled this since they have “knighted” appraisers as home inspectors. Appraisers generally judge quality and condition. To think they are inspectors and require some random repair, then go back and judge whether it was done correctly is just ludicrous and frankly not what appraisers are licensed to do.
You obviously have no idea what an appraiser does or looks for on a FHA assignment. Please read the HUD handbook 4000.1 pages 465-532. Seldom does any appraiser call for a professional inspection unless it’s a roof, mechanical or foundation issue. These are big ticket items that need an expert.
So wrong, SMH. I cannot tell you how many FHA appraisers I go behind that require gutters to be repaired, the property to be painted, a deck that was not constructed properly. Apparently I am doing this correct that I call for experts. Real Estate Agents tell me all the time the repair requirements that appraisers tell them to do. Inspectors should be suggesting specific repairs, not appraisers.
Calling for paint, gutter repair or an outlet fix doesn’t mean calling an expert. Means it’s a FHA issue that needs addressed. The owner, you or even the neighbor can do these simple remedies. But , the owner, you or the neighbor probably can not certify a foundation, diagnose & remedy roof issues or replace a HW heater. Want to know what appraisers look for? Read the handbook.
Jon, if the agents “tell you all the time the repair requirements”, why wouldn’t they moving forward remember what’s required, or take an active approach and seek the truth as to what’s required (HUD handbook 4000.1 pages 465-532 / VA Lender guidelines)? How can they represent and advise their client, if it seems they have limited knowledge as to what is going to get looked at by an appraiser?
Seek the truth.
So would call for an inspection for cracked sheet rock, missing roof shingles, an unfinished rear deck? Not every repair issue requires an inspection.
Its never easy Ross. Are the missing roof shingles all from one spot? Is the unfinished deck off the 2nd floor main bedroom? By unfinished, is part of the decking missing, or is there no railing? The problem with our industry Ross (there are many), is that the powers that be want to streamline a process (C3, Q4, Neutral, etc.), and don’t want delaying what ifs from the local expert appraiser. They may be able to determine in advance by way of TRID guidelines what the appraisal fee is, but to this point, and they keep trying, appraisers are still free to judge the property during the inspection.
Seek the truth.
Ross Grannan, Yes, I cannot tell you how many appraisers are doing this. If it does not require an inspection, then I as the appraiser will not be telling someone to do it. Maybe the roof has Flex seal on it. Just as I say I am not an expert in construction all over my appraisal, I will not require repairs to be done that an inspector has not looked at.
So you’re the guy whom came before me and I had to look like the bad guy for calling obviously needed repairs to bring a home up to minimum standards. Noted. Get over the legalese glass house thing and come back to the real world. You don’t have to be a genius to know if something is broken or deficient and one presumes most appraisers are at least as smart as the laborers we call in to follow up.
John, your right appraisers are not inspectors and we do need to stay in our lane. That being said, my two examples THIS WEEK (VA loans), are turning on a light switch and seeing sparks and hearing a sizzle as the lights go out, and while looking at windows for broken panes (its required), discovering security bars (bedroom 1 window) that were INSIDE and between horizontal blinds, and curtains (not visible from exterior/or interior doorway) that had NO quick releases. I don’t have to be an electrician to know sparks from the light switch are a problem, nor a fire marshal to determine a single entrance/exit is a problem. Interesting enough Jon, do you know that the VA does not technically require the appraiser to sign off on such repairs (be the expert), but rather allows documentation from the expert as proof of showing the work was done to code / requirement? The issue becomes, does the VA SAR understand the lender guidelines (no further involvement from appraiser required), or are they going to call out on the notice of value for the appraiser to confirm such repairs have been completed?
Seek the truth.
Truth here. If I saw sparks, I would call for an inspector to tell me the electrical is OK. I just know other appraisers would call for the light switch to be replaced or make some other diagnosis. I have been getting pretty discouraged that appraisers are doing this. I am so encouraged by the comments today that there are appraisers who are NOT trying to be inspectors. I have even had lenders push me on this stuff, telling me to diagnose problems, put the costs to cure, and require certain repairs. Thankfully, they kicked me off their panel. I know values. I don’t know construction techniques/repair techniques. I have to say, I would have no idea what the costs to cure would be on a sparking light switch. Seems that could be from $5 to $25,000.
We are in agreement on this point. You can call for obvious items but should never ‘diagnose’. It’s o.k. to speculate though, that action is helpful because then you can tap into your knowledge base of anticipated likely real world costs. Something is wrong, call in an inspector, here are photos of the obvious indications of such. etc, etc.
The problem with only referring to ‘needs inspection’, is that there is a wide open door for fraud and abuse by interested parties who may hope to sweep this under the rug. Inevitably it is the buyer whom will be least represented and experience the most harm.
That’s why I demand paperwork, an inspection, and stack then vs repaired photos to cya. You should get better at estimates. Over the years I’ve seen all sorts of math whiz applicants. Appraiser hiring should be more focused around practical skill sets. A general contractor would run circles around most appraisers, if they had the appraiser license. If you want to be a better appraiser, learn more about construction and utility systems. How exactly does one competently call value if they have no clue what the sum of the components is really worth?
Cheers.
Here’s some good ones Jon. How about when the appraiser indicates that a properties zoning compliance is legal, but yet each city seems to devote hundreds of pages to the topic (set backs, height restrictions, etc.). Without calling in a professional surveyor to specifically define the properties boundaries, how do I know if a zero lot line garage is truly only on the subjects lot, and not a few inches or a foot into the neighbors? How about when the condo association has ongoing pending litigation (sometimes years), but yet lenders want appraisers to be the lawyer, judge, and jury and reach a result (effect) when the outcome is unknown.
Forget about basic inspection concerns, the appraisal form itself is littered with career ending landmines.
Seek the truth.
That’s why I don’t appraise Denver unless I’m really desperate for work…
Zoning and coding, what a chore. And they just expanded the highrise district. Urban is a specialty in itself.
https://www.denvergov.org/content/denvergov/en/community-planning-and-development/zoning/denver-zoning-code.html
Just look at that zoning and in case you’re wondering, yes, it does change block by block in some locations. We’ve got people down there flipping old units in revitalization areas with eminent domain pending and they don’t even have a clue that’s all possibly in place in the not so distant future. Suburbia is where you can just take it easy and primarily only deal with MLS.
I do not tell the seller or borrower anything. They are not my client. I inform the client, the lender and in the case of a VA Appraisal, the VA. Need to start by knowing who/whom your client is.
Silly that the two real estate agents, who know they have a FHA buyer, are not semi-educated on some of the basic FHA issues. They could head most of this off before the appraisal and not delay the closing.
I just looked at an REO property today that has several additions and has 3 electrical panel boxes. Does that seem odd to anyone ?
No problem EJ. See the electrical boxes belong to 100 Main St, 100 1/2 Main St, and 100 1/3 Main St. Bootleg triplex, where I come from we call that a Monday, and its most likely at the beach and worth 1.3 million.
Seek the truth.
Well, I’m more in the swamp than the beach. I was just thinking this place seems like a do-it-yourself kind of project. Think I’ll just recommend an inspection. What the hell, I don’t care.
Thanks for the response!
Bill Johnson, I would suggest not telling anyone other than your client what repairs are needed. Spell it out in detail to your client and let them relay the information.
Telling someone like a realtor or homeowner at the time of inspection will only lead to a he said she said scenario.
Next thing you know a homeowner is painting his entire house because you told him to paint one wall.
Speak the truth
Detailed index and breakdown of all repair requests along with a simple summary. One would have to be a very awful communicator in person and in writing for such a scenario to happen.
See addenda and blank fields throughout the report; How to spot an appraiser who’s either outsourcing, dialing it in, or just does not give a damn.
Agents don’t take the time to read the handbook and most order managers and order assignment clerks have never bothered to read through their own companies chosen funding managers lending policy guidelines. It is a repair request if there is not a functioning upper bath, if there is exposed siding holes, if certain doors and locks do not work, if stair steps are broken, alarms missing, etc, etc. It is not a repair call if they don’t have carpet down or there is spray paint on drywall, etc. Essential utility vs cosmetics.
It’s doubtful most appraisers have bothered to read those documents either. But if you wonder why underwriters call what they do, you’d then naturally be redirected to the various internal lending guideline documents. Always subject to interpretation so if anyone pushes the line of credibility, I’m happy to stack them out repair calls. Then hypo as repaired, often bridges the value gap for aggressive representation. Some appraisers just go with minimum reporting standards then devote follow up time if there are calls and higher attention. Other appraisers seek to provide the full detail consistent service regardless of any presumptions of qualification or quality. That would be your volume vs detail argument, better refined.
The reason you can never predict what they’ll ‘call out’, is because they apply varied level of scrutiny per individual borrower. If that borrower is flexing the grey area of approval on several fronts, then they’ll also often want additional assurance with a more stringent appraisal analysis. Where as if the borrower sails through but somehow still needed or requested the full appraisal, lots of leniency. Call something below average, open door for subjective repair calls. Just one example, these read like simplified short versions of the longer legal codes for those respective fields and various rule sets. Still often 150 pgs+ though. “If you’ve bothered to read one, you’ve read them all.”
https://oaktreewholesale.com/wp-content/uploads/2017/10/Oaktree-Funding-Non-Agency-Underwriting-Guidelines-10-02-2017.pdf
Spot on I do the same! It’s easy to read people, if they are nice and reasonable; hey you’ll
Need to correct that peeling paint and add hand rails, If they are not such gregarious folks the lender can tell them and I’ll deal with the angry phone call, just the nature of the beast!
“They order field reviews on everything lately. If I can see it, the next completely unbiased field reviewer will too. I am required to take full room pictures. It’s best if none of this comes back on either of us so some simple repairs will go a long way towards better assured qualification and funding of a new loan.”
It’s like the used car auto financing game, but just with much higher stakes. You don’t want to be called back in there to have to renegotiate terms or deal with additional qualification submittal compliance. Go to statements which work with everyday borrowers.