How do appraisers come up with value adjustments for a busy street?

We all know most buyers are going to pay less for a home on a busy street. But how much less? Is it really only something minimal like $5,000 or $10,000, or is it much more substantial? Knowing how to come up with adjustments is critical for anyone working in real estate, so let’s walk through a two-step example below to shed some light on how appraisers might approach a busy location.

busy street in real estate appraisal

The Temptation: It’s easy to use the same adjustments in every neighborhood and in every market, but there is no one-size-fits-all adjustment that will work in every case. This is why we need to know how to research the market.

Here are a couple key points and steps:

1) The best comps don’t need adjustments:

Freeport Blvd Sales in Sacramento

The first thing we want to do is look for sales and listings on the same street. When we have similar sales with roughly the same location, these properties tell us exactly what the market is willing to pay. There is no guessing and no need to use many other sales because we essentially have the best examples of properties that have already been vetted by the market. If we pull sales or listings from a superior street, it’s easy to minimize the adverse location. But if all the sales on the busy street are coming in substantially lower than surrounding sales, the market has spoken. If you don’t have recent sales, you can look at much older sales on the same street, and study other nearby sales at the time to see how much of a value impact there was. If there are zero sales on the subject street, find a competitive busy street in the market area (or maybe even a commercial location or something quasi-similar). There has to be something out there. Also be sure to look at actives, pendings, expired listings and withdrawn listings since they can sometimes give clues on value.

2) Comparing busy vs. not busy:

freeport 2

This is where we take a good look at any potential price difference between sales and listings on busy and not busy streets. We have to make sure we are comparing “apples to apples” so to speak, so pay close attention to size, condition, upgrades, lot size, layout, garage space, etc… The goal is to match up several sales instead of just one example because this helps us have a better context of support. In truth we might end up coming up with a range of value for what we think the adjustment should be too. That’s okay. Just ask yourself where your property realistically fits on the range of value spectrum.

freeport 2b

The Verdict: There haven’t been many recent sales in the immediate area lately, which makes it a more involved process to establish value. But even with these older sales, the value difference is fairly large, right? When looking at sales on Freeport Blvd vs competitive sales on typical streets, it looks like the value range is easily anywhere from 25-50K+. If we spent more time on this, we could hone in on a tighter range, but you get the point, right?

NOTE: I am not saying this is the adjustment to give. This is simply a quick snapshot of the market right now for the sake of illustrating a methodology. Remember that these properties on Freeport Blvd also back to public transportation too.

I hope this was helpful. I’d love to hear your take in the comments below.

Questions: Any further insight or stories to share? How have you seen an adverse location impact the value of a property?

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The big problem of low fees in the appraisal industry

There is so much conversation about the appraised value coming in too low, but let’s turn the tables to talk about appraisal fees being too low. I know, who cares, right? But if you are a home owner or work in real estate, it’s good to know what’s going on. Is this happening during your escrows? Is it fair to pay so much for an appraisal when a huge chunk of the fee gets skimmed off the top by a management company?

Low appraisal fees - image purchased by Sacramento Appraisal Blog and used with permission

Why This Matters: 1) Low fees for purchase and refinance appraisals are crippling to the longevity of the appraisal industry. If fees are too low, appraisers simply cannot stay in business. Also, if you think it’s taking too long to get an appraisal back to you right now, just wait until the industry shrinks more as appraisers leave because they can make better money elsewhere; 2) Consumers are likely not keen to pay good money for an appraisal only to have Appraisal Management Companies (AMCs) scrape a substantial amount of the fee off the top.

Here are three real life examples of low fees offered to appraisers:

EXAMPLE 1: Low fees with the promise of bulk business

low feesComment: It’s shocking to see marketing emails like this because fees haven’t been this low for decades. Of course the consumer is probably paying at least $450 to $500 for the appraisal. The ironic thing too is the word “reasonable” in the last line. This word is used strategically because AMCs are mandated under Frank Dodd to pay customary and “reasonable” fees.

EXAMPLE 2: Cheap fees with a quick turn-time:

need a 4-day turn time at $250

Comment: Most local lenders easily pay the appraiser $400-500+ for an FHA appraisal, so $250 is definitely low. The kicker is the appraisal was ordered on a Thursday and due by Monday morning at 10am. When is the appraiser going to have time to do the report?

EXAMPLE 3: A blast order sent to MANY appraisers

field review

Comment: This was a blast order to who knows how many appraisers. A massive blast email is one way for an Appraisal Management Company to get the quickest and cheapest appraisal fees because someone is going to accept it (which is a different issue). Some AMCs use a blast email system like this with a link. Whoever clicks “accept” first gets the order. This lender is wanting to do “quality” control, yet they are reaching out to pay an appraiser only $200 for a field review of a complex property. Do you think they can get quality for such a low fee?

ACTION STEPS:

  1. Agents Find Out: Real estate agents, be aware what your recommended lenders are paying appraisers and how they order appraisals. I’m not talking about what your buyers are paying, but what are appraisers actually getting? If you are concerned about appraisal quality as well as reasonable turn times, choose lenders who build a relationship with appraisers and pay them well. There are many local mortgage companies (and some national companies) with in-house appraisal departments who hand-pick a group of local appraisers and pay them a reasonable fee. I tend to like this system the best, though there are also some larger AMCs that I hear are okay overall. Remember, what happens to one group in the real estate community can end up impacting everyone else.
  2. Appraisers: Work for Reasonable Fees: Appraisers, are you working for clients like the examples above? Or maybe you are approved with several AMCs that seem okay overall, but their fees are still too low. Hey, we all need to feed our families, and there is no fault in getting paid. But why not start looking for better clients and then begin dropping the bad ones? Heck, start an appraisal blog to share your voice and expertise. It may take many months or even years to diversify your clientele, but go for it. Who do you want to work for? What type of work do you want to do? What does it look like to be intentional about finding great clients over these next 1-2 years?

I hope this was helpful. I’d love to hear your take in the comments.

Questions: What do you think of the examples above? Does it surprise you to see these real life examples? Any stories or insight to share?

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High demand persists in the Sacramento real estate market

What is the real estate market doing? That’s not always a quick 10-second answer you can give someone while standing in line at Starbucks. Yet here’s the scoop: Demand is very high, values are up, and inventory is down. We are seeing exactly what we would expect to see in a Spring market, and I’d like to invite you to unpack the market with me in this post so you can share specific trends with your clients.

buyers are ready to pull the trigger - image purchased by sacramento appraisal blog and used with permission

One Paragraph to Explain the Market: The market is having a normal Spring so far. Prices are up, sales volume is increasing, and housing inventory is down. Buyers are hungry out there, which is seen with pendings being 25% higher in the regional market in March 2015 compared to March 2014. Cash sales continue to decline in volume, while FHA buyers are gaining a greater share of the market. Short sales and bank-owned sales are still hovering at very low levels, though there was a slight uptick in volume this past quarter (nothing to sound the alarm about). It took an average of 51 days to sell a house in the region last month, which is 4 days longer than it took last year (thus while the market feels hot, we can also see the market is slowing down too). Well-priced listings are going quickly and experiencing multiple offers, but properties with adverse locations and/or a lack of upgrades are tending to sit on the market. There is a huge demand for quality inventory, yet at the same time the market is price sensitive since buyers are showing discretion. Many neighborhoods over these past few months experienced a seasonal increase in value (not all areas though). Remember in coming time that inventory historically sees a huge increase from April onward, and that can very easily change the tone of the market.

NOTE: This post is longer since it is my big monthly market update. I am experimenting with more graphs and less text. Do you miss the numbers and bullet points? I’d love some feedback.

Two ways to read this post:

  1. Scan the talking points and graphs quickly.
  2. Grab a cup of coffee and spend a few minutes digesting what is here

DOWNLOAD 62 graphs HERE for free (zip file): Please download all 62 graphs here as a zip file (or send me an email). Use them for study, for your newsletter, or even some on your blog. See my sharing policy for 5 ways to share.

SACRAMENTO REGION (Sac, Placer, Yolo, El Dorado):

median price and inventory in sacramento placer yolo el dorado county

days on market in placer sac el dorado yolo county by sacramento appraisal blog

months of housing inventory in region by sacramento appraisal blog

number of listings in Placer Sacramento Yolo El Dorado county - by home appraiser blog

interest rates inventory median price in sacramento regional market by sacramento appraisal blog

SACRAMENTO COUNTY:

Median price and inventory since 2012 by sacramento appraisal blog price metrics since 2014 in sacramento county

cash in sacramento county

fha and cash in sacramento county - by sacramento appraisal blog

Volume and cash since 2009 - by Sacramento Appraisal Blog

reo and short sales in sacramento county

months of housing inventory by sacramento appraisal blog

CDOM in Sacramento County - by Sacramento Appraisal Blog

sales volume through feb 2015 in sacramento county

sales volume in march in Sacramento County since 2001

PLACER COUNTY:

Placer County median price and inventory - by home appraiser blog

days on market in placer county by sacramento appraisal blog months of housing inventory in placer county by sacramento appraisal blog

Placer County median price since 2012 - by home appraiser blog

Placer County sales volume - by sacramento appraisal blog

interest rates inventory median price in placer county by sacramento appraisal blog

Questions: How do you think sellers and buyers are feeling about the market right now? What are you seeing out there?

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Does knowing the contract price give the appraiser a target value?

Why do appraisers get a copy of the contract? Doesn’t this set the value stage? Someone asked me this recently, and I wanted to respond with a few thoughts. I’d love to hear your take in the comments too.

Image purchased by 123rf dot com and used with permission by sacramento appraisal blog - target value

Things to Remember about the Appraiser Knowing the Contract Price:

  1. Fannie Mae Requirement: If you didn’t know, the Fannie Mae appraisal form requires appraisers to analyze the purchase contract. Fannie Mae wants appraisers to list the contract price, date of contract, whether the seller is the owner (a safeguard against fraud), and if there are any concessions offered to the buyer. Moreover, if the contract cannot be analyzed, the appraiser has to explain why. See the text below straight from Fannie Mae.
  2. Valuable Data: Purchase contracts can provide valuable information to the appraiser. Sometimes there are listed repairs, credits offered, personal property given, or other incentives that might be influencing the agreed upon price. Other times there are a series of counter offers that help tell the story how a contract price was negotiated.
  3. MLS: Even if Fannie Mae did not ask appraisers to analyze the contract, appraisers would likely have MLS data during a sale, and then the complaint would be that appraisers are using the MLS pending price as a target value. Thus the issue is appraisers need to be objective about the value regardless of the information they have (and having more information is a good thing when valuing a property).
  4. The Bad: Appraisers can use a contract price as a target, but it shouldn’t be the goal to meet a certain value since appraisers are supposed to be objective and unbiased. We all know properties get into contract too high and too low at times, so appraisals shouldn’t “hit the number” every single time.
  5. The Good: There is nothing wrong with reconciling the appraised value to the contract price if the contract price represents a reasonable and supported value for the neighborhood. When doing this, an appraiser might say the following: “The contract price falls within the range of values indicated by comparable properties and represents a reasonable value for the subject property. Therefore the opinion of value in this report was reconciled to the contract price.” Or in layman’s terms, “Yep, the buyer and seller nailed it. Value is solid right where they agreed. How can I argue with that?”

Straight from Fannie Mae (p. 564 of the Seller’s Guide): All appropriate financing data and sales concessions for the subject property that will be or have been granted by anyone associated with the transaction must be disclosed to the appraiser. Typically, this information is provided in the sales contract. Therefore, the lender must provide, or ensure that the appraiser is provided with a copy of the complete ratified sales contract and all addenda for the property that is to be appraised. If the contract is amended, the lender must provide the updated contract to the appraiser to ensure that the appraiser has been given the opportunity to consider any changes and their affect on value. If the lender is aware of additional pertinent information that is not included in the sales contract, the lender must provide this information to the appraiser.

Questions: Do you think it makes a difference in the appraisal when the appraiser knows the contract price? Appraisers, what do you like or not like about analyzing the contract as a part of a purchase transaction?

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How do you know when a real estate market is increasing?

If a client asked you how to know when a real estate market is increasing in value, what would you say? Prices going up is the first and obvious answer, but what else? There are a number of different metrics to watch, and the image below helps hit on some of the main issues. Anything else you’d add?

Signs of an increasing market - 530

Markets tend to change over time rather than in an instant, so it’s important to know which metrics to watch. It’s also helpful to listen to what buyers are saying. After all, there is something about consumer confidence and the mood among buyers that cannot always be captured in one neat little metric. The other big question we must ask is: Why are values increasing? Remember that an increase in housing supply or interest rates can change the direction of the market in a heartbeat too (especially after the Spring seasonal market fades). This is why it’s also important to know the signs of a softening market.

think like an appraiserHow to Think Like an Appraiser: I’m excited to be teaching a class in a couple days at the Sacramento Association of Realtors. The class is called “How to think like an appraiser”, and we’ll hit on how to choose comps, how to make adjustments, and tips for working with appraisers. This will be very practical, and we’ll have many case studies to talk through in the class. See the image and register online here.

Question: What other signs do you watch to know if the market is increasing?

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6 things to remember when valuing a newer home in an older neighborhood

How do you value a new home in an old neighborhood? Here are six things I keep at the forefront of my mind when approaching this situation and choosing comps. What else would you add? I’d love to hear your take in the comments.

New vs Old Homes in a Neighborhood - by sacramento appraisal blog

  1. Premium: There is usually a premium for new construction. Just as buyers pay more for that new car smell, buyers will typically pay more for a home that has never been lived in.
  2. Fading Premium: However, the premium for new construction fades VERY quickly. This is important to keep in mind because any premium paid when the house was built a few years ago may not exist in today’s resale market.
  3. Infill Location: If the newer home is part of an infill project, it might have a bad location since the best locations were probably already built out. Moreover, infill projects tend to have tiny lots compared to larger ones found with older properties.
  4. Quality: Sometimes newer homes may not have the same quality as older homes, which reminds us new is not always more valuable. Other times though new homes are far superior to the surrounding area.
  5. Conformity: Does the property fit in with the neighborhood in terms of design and size? Or does it stand out in a bad way? The principle of conformity is a very relevant dynamic in real estate, and whether a property fits in the neighborhood or not can impact its value.
  6. Neighborhood Acceptance: Sometimes neighborhoods go through a period of change where it becomes more acceptable for older homes to be torn down and newer bigger ones rebuilt (East Sacramento). Other times it is not common or acceptable, so a new home might look like a sore thumb.

When valuing a newer home next to older ones, it’s easy to automatically assume it’s worth more. Yet we have to ask, how does the market see this new property? Is the market willing to pay more for this or not? What are buyers looking for in the neighborhood? The proof is in the data, so often times we need to dig deep for comparable sales. It might even be helpful to search through the past several years of sales to find something else that was new. What was comparable to the new property at the time of its sale? Did it sell with any premium? Or did it sell right on par with other older homes? Be careful of course when interpreting new construction comps since sometimes newly constructed homes are loaded with concessions and credits, which can inflate the price.

Questions: What’s number 7? Any other thoughts or insight?

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The real estate market that ripened early in Sacramento

The market ripened early this year. Buyers have simply been ready before sellers. On one hand listings and sales have been at fairly normal levels for the first two months of the year, so we can say the market is normal in that regard. But buyer demand really took off last month as pendings in the regional market were up by almost 30% compared to last February. This is the part that is not normal, and why we can say the Spring market ripened early.

Hungry buyers - image purchased and used with permission by Sacramento Appraisal Blog

One Paragraph to Explain the Market: Well-priced listings are going quickly and experiencing multiple offers, but otherwise properties are sitting on the market if they are not priced correctly. Buyers have been anxious to get into contract, but at the same time they seem to be showing discretion by not readily pulling the trigger on homes with adverse locations or issues. This has led to a sense of many current listings feeling like leftovers since they’ve been well vetted like thrift store clothing. The good news is we are reaching the time of year where more listings should be hitting the market to help alleviate the pressure of a lack of good inventory. Lastly, it took a few less days to sell last month, inventory decreased, and the sales to original list price ratio increased (all normal in Spring).

NOTE: I am posting once a week now, and this means my big monthly post will have less text, but a few more graphs (Placer, Sacramento County, & Regional Market).

Two ways to read this post:

  1. Scan the talking points and graphs quickly.
  2. Grab a cup of coffee and spend a few minutes digesting what is here

DOWNLOAD 45+ graphs HERE for free (zip file): Please download these 45+ graphs here as a zip file (or send me an email). Use them for study, for your newsletter, or even some on your blog. See my sharing policy for 5 ways to share.

SACRAMENTO COUNTY:

median price and inventory since 2013 - by sacramento appraisal blog price metrics since 2014 in sacramento countymonths of housing inventory by sacramento appraisal blogCDOM in Sacramento County - by Sacramento Appraisal Blogsales volume in Sacramento Countyfebruary sales in sacramento county

PLACER COUNTY:

Placer County median price and inventory - by home appraiser blog

number of listings in PLACER county -February 2015 - by home appraiser blog

months of housing inventory in placer county by sacramento appraisal blog

days on market in placer county by sacramento appraisal blog

Placer County sales volume - by sacramento appraisal blog

SACRAMENTO REGION (Sac, Placer, Yolo, El Dorado):

median price and inventory in sacramento placer yolo el dorado county

days on market in placer sac el dorado yolo county by sacramento appraisal blogmonths of housing inventory in region by sacramento appraisal blogRegional market median price - by home appraiser blognumber of listings in Placer Sacramento Yolo El Dorado county - by home appraiser bloginterest rates inventory median price in sacramento regional market by sacramento appraisal blog

Questions: What is driving buyers to get into contract? Is it low rates? Is it a sense of needing to get in a home before values rise too quickly? What do you think?

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Why comparing the right numbers matters so much in real estate

You can make numbers say whatever you want in real estate. Sometimes this happens on purpose, but other times it’s an accident. That’s why it’s so important to know how to make the right comparisons. Below I will show you an example of how you can look at the numbers and end up saying two completely different things about the market. Both might be technically true, yet one of the statements really doesn’t reflect the real trend. In an era of big data in real estate, knowing how to communicate these things to clients is key. Enjoy.

Looking at the numbers - image purchased and used with permission by sacramento appraiser blog

THE WRONG COMPARISON: (Volume is down by 30%)

December to January

When we compare January with December, it’s easy to get an inaccurate picture of the market (but it happens all the time in media outlets). In the case above, we see a 30% decline, and this sounds very alarming. Yet volume from December to January almost always decreases by 20-25% easily in any given year in Sacramento, so 30% in not something to freak out about.

Truth: Comparing the previous month to the current month can sometimes give us the wrong picture about the market – especially in the midst of a strong seasonal trend. Volume is ALWAYS lower in January (see this quick graph as proof).

THE RIGHT COMPARISON: (Volume is down by 4.5%)

Month to Month

When we compare January 2015 with January 2014, we see sales volume was down by only 4.5% this year. That’s a far cry from sounding the alarm that “VOLUME IS DOWN BY 30%”. In this case the most accurate thing we can say about the market is that volume was 4.5% lower this January.

Truth: Comparing the current month to the same month last year tends to give us important insight because we are using the same context for comparison. I’m not saying to not compare back-to-back months, but only to get in the habit of looking at the same month last year too. This is especially important when dealing with January and February data since they are typically slower months in terms of closed escrows. Remember too that last month’s sales tell us what the market used to be like when these properties went into contract 30-60+ days ago, but current listings and pendings tell us about the market right now.

Questions: Any thoughts or insight? I’d love to hear your take.

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5 things to remember when using price per sq ft in real estate

Using price per sq ft can be very dangerous. I know that sounds odd because price per sq ft is about as common as anything in real estate. Home owners ask, “How much is the price per sq ft in the neighborhood?”, and real estate agents might say, “I priced this property based on the price per sq ft in the area.” But having a correct understanding about the way price per sq ft works can revolutionize the way we see the market and value properties. Let’s unpack five principles below, and I’d love to hear your take in the comments.

DOWNLOAD a more detailed version of this post to pass along to your office.

Image purchased by Sacramento Appraisal Blog from 123rf dot com and used with permission

5 principles to remember when using price per sq ft in real estate:

1) There is a price per sq ft spectrum in a neighborhood: There is never just one price per sq ft figure that applies to every property in a neighborhood. For instance, a neighborhood might easily see a price per sq ft range from $100 to $250 when looking at all sales.

2) Similar houses tend to have a similar price per sq ft: When homes are similar in size, location, bed/bath count, etc…, they tend to have a similar price per sq ft. That’s obvious, but the contrasting factor is that non-similar homes might have a VERY different price per sq ft that shouldn’t be used to value your home.

3) Property characteristics can quickly change the price per sq ft: When there are differences in condition, location, lot size, quality of upgrades, bed/bath count, size, etc… the price per sq ft can change dramatically. We might see a small remodeled home selling at $250 per sq ft, a model match fixer selling at $175 per sq ft, a short sale model selling at $185 per sq ft, and a home with an adverse location selling at $215 per sq ft. Thus even for one model there could be a price per sq ft range from $175 to $250.

4) Smaller homes tend to have a higher price per sq ft: It costs more to build smaller homes, so smaller homes tend to have a higher price per sq ft than larger homes. This is why it’s dangerous to use a price per sq ft figure from a smaller sale to value a larger home. A smaller home might sell at $250 per sq ft, but a larger home might be closer $150 per sq ft. Here is a quick video below (or here):

5) Price per sq ft provides a valuable context: When you can talk through price per sq ft figures in a neighborhood, and explain the above points, you are an incredible resource. Appraisers, pay close attention to the price per sq ft range in a neighborhood. Some appraisers treat price per sq ft as a meaningless metric, but it’s actually valuable. If your value does not fall within the range (especially the competitive price per sq ft range), it’s important to be able to explain that.

CONCLUSION: Be careful about using price per sq ft to price a property because sometimes it’s like putting the cart before the horse. I recommend starting a valuation with an “apples to apples” approach where you first and foremost try to find other similar sales and listings in the neighborhood, and then subtract and add value based on any differences with your property. After you have a grasp of similar sales, research price per sq ft figures for the entire neighborhood as well as competitive properties. Ask yourself if your value makes sense in light of price per sq ft figures.

Questions: Any thoughts or insight? I’d love to hear your take.

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What do appraisers look for during an FHA inspection? (free download)

What do appraisers look for when doing an FHA appraisal? These days it’s important to be in tune with FHA appraisal standards so your home can be FHA-ready or so you can know what to expect if accepting an FHA offer. Let’s talk through some of the most common FHA issues below. You can also download an FHA checklist to study or share with clients. This checklist has all the information from this post as well as one additional page.

what appraisers look for during an FHA inspection

DOWNLOAD an FHA checklist HERE (pdf)

The Main Idea with FHA: FHA is primarily concerned that everything in the house functions properly and that there are no health and safety issues. The basic concept of meeting FHA minimum requirements is that everything must work as it was designed to work. For example, a window that is supposed to open must open, and a built-in appliance should do what that appliance is supposed to do. If you have a sliding glass door with a lock on the handle, the lock should work.

FHA requirements - from sacramento appraisal blog

What do FHA appraisers look for?

  • Utilities should be turned on so the appraiser can test systems and appliances.
  • Appliances must function properly.
  • fha-logoThere should be proper drainage around the perimeter of the house.
  • The heating unit must be in working order (and AC if applicable).
  • Water pressure must be adequate for the house. Appraisers flush toilets, turn on all faucets and ensure that both hot and cold water are working.
  • The water heater must be in working order and strapped according to local code.
  • Attics and crawlspaces are to be viewed at minimum from the shoulder up by the appraiser. When viewing the attic, appraisers make sure there are vents, no damage, no exposed or frayed wires, and that sunlight is not beaming through. When inspecting the crawl space, appraisers make sure there are no signs of standing water or any other foundation support issues. Excessive debris in the attic or crawl space should be removed.
  • Paint must not be chipping, peeling, or flaking on homes built before 1978 because of the danger of lead-based paint (lead was used in paint prior to 1978). However, there must be no defective paint or bare wood for properties built after 1978 because defective paint impacts the economic longevity of the property. Defective paint should be scraped and re-painted (with no wood chips on the soil).
  • Electrical outlets must work (outlets should have a cover plate also).
  • Toilets must flush and be mounted.
  • Any active termite infestation needs to be cured.
  • Minor cosmetic issues such as stained carpet or a need for interior paint are okay. The house does not have to be perfect, but if there are issues that impact health and safety or the long-term economic viability of the property, then those issues must be cured.
  • Windows must open and close and they cannot be broken. Minor cracks can be okay so long as there is not an issue with safety, soundness and security.
  • No dangling wires from missing fixtures or anywhere else.
  • FHA doesn’t require air conditioning, but if present the system should work as intended.
  • Smoke detectors & carbon monoxide detectors are required insofar as required by local code
  • The firewall from the garage to the house should be intact. Missing sheetrock, a pet door installed in the door, a lack of self-closing hinges, or a hollow door could pose a safety issue.
  • A roof should not be leaking and needs to have at least two years of economic life left.
  • A house will be rejected if the site is subject to hazards, environmental contaminants, noxious odors, or excessive noises to the point of endangering the physical improvements or affecting the livability of the property (this isn’t an issue for the vast majority of properties).
  • A trip hazard is a subjective call to make by the appraiser and not necessarily an automatic repair, but if there is a legitimate safety issue it should be called out by the appraiser.
  • There are things any appraiser will call out in an FHA appraisal, but there are times when appraisers have to consider how the spirit of FHA might apply in a situation. FHA is black and white on many issues, but other times appraisers simply need to use good judgment.

Reminder About Difference in Locations: Appraisers in different parts of the country may require some items in their appraisals that might not be required elsewhere. For instance, carbon monoxide detectors are required in most residential homes in California, but this is not the case in many other states. An FHA appraiser in a different state might not even mention a CO detector, but in Sacramento it is commonplace.

DOWNLOAD an FHA checklist HERE (pdf)

I hope this was helpful. If you’re looking for more information on FHA appraisal standards, you can check out other FHA appraisal articles I’ve written.

Questions: Anything else you’d add to the list? Any FHA questions? Appraisers, if you have any stories to share about properties that were rejected, speak on.

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