How do appraisers deal with cracks?

Is it going to be an appraisal problem if there are cracks in a home’s foundation or walls? I saw the crack below in a home in Sacramento, and stuck a pen in the wall to show how big it was. What do you think? No biggie or big deal? I’d love to hear your take in the comments below.

cracks in walls in appraisal - sacramento appraisal blog

Here are a few things to consider about cracks:

  1. Cracks are Common: Buyers buy homes all the time with cracks – especially on the exterior when there is stucco. Cracks are a bit like wrinkles in that they are inevitable at some point as a home ages. Yet sometimes we see a crack like the image above and think, “Yikes, what is going on?”
  2. Cracks are Subjective: Some cracks might be deemed “normal” by an appraiser because nearly every house in the neighborhood has cracks as such. I know it sounds a bit subjective to talk like this, but after seeing thousands of homes in an area, appraisers have to consider what normal looks like. Yet other times cracks might indicate something is clearly not right. So will the appraiser call for repairs? Well, there really isn’t a one size fits all answer because not all cracks are created equally.
  3. Fannie Mae Structural Integrity: If you didn’t know, Fannie Mae’s appraisal form asks appraisers to state whether there are any adverse conditions or physical deficiencies that impact the livability, soundness, or structural integrity of the property. Side note: Is it just me, or is it a bit odd that Fannie Mae asks appraisers to verify something like this? Anyway, appraisers either select YES or NO to this question in their appraisal reports. This means if an appraiser observes a crack that looks beyond what might be “normal”, the appraiser will describe the issue, include photographs, and possibly call for repairs or further investigation by the client. If an appraiser essentially believes there could be a problem, it’s prudent and professional for the appraiser to bring the issue up rather than ignore it.
  4. Qualified Professionals: Lenders sometimes ask appraisers to state that cracks are normal or okay, but since appraisers aren’t crack specialists they need to outsource making that call to someone else – a qualified professional. I do this from time to time in lender reports when I see an iffy crack. I don’t know if there’s an issue or not, but if a crack looks suspicious or too big, I’d rather not guess that things are okay. So I make the value subject to further inspection to make sure things are alright. I don’t do this for every single crack I meet because then I’d be asking for an inspection on virtually every single property. It’s really only when something looks out-of-the-ordinary (or there is a clear trip hazard for FHA). What type of professional should look into the situation? As an appraiser I simply say “qualified professional” and let the client decide. Often times a lender will send out a structural engineer or some other individual they deem qualified, and I can then include that person’s written professional opinion in the appraisal if needed. Keep in mind this is important because a lender will want to be sure there are no structural issues before lending on a property. However, during a cash transaction or private appraisal, an appraiser might not have access to a “qualified professional’s” opinion. Thus the appraiser will render a value, but make assumptions and disclaimers about the cracks – and reserve the right to adapt the opinion of value based on new information. Lastly, in other cases an appraiser might have a documented cost-to-cure from a qualified professional. In a case like this an appraiser would entertain what sort of value impact exists for the repairs so the appraiser can render an “as is” value.

I hope that was helpful. Any thoughts? I’d love to hear your take.

Class I’m Teaching: By the way, I’m teaching a class called How to Think Like an Appraiser at the Sacramento Association of Realtors on March 10 from 9-12pm. This is my favorite class to teach because we set aside a few hours to really tackle issues and get valuation training. You can register here if interested. Thanks.

how to think like an appraiser class - sacramento appraisal blog

Questions: Any stories, insight, or ideas to share? Did I miss anything? What is point #5?

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Comments

  1. says

    Great article Ryan. Cracks are a common question that I get as an appraiser. Your title made me think that the next blog post in the series could be, “How do plumbers deal with cracks?” 😀 Sorry if there are any plumbers reading this appraiser thread.

    • says

      That would be an excellent point #5. Appraisers are often asked to comment on issues outside of their expertise. Cracks certainly fall into this category. For any onlookers, what else are appraisers asked to discuss?

  2. Russ says

    Hi Ryan

    This is a good subject. I was appraising in So Cal in the aftermath of the Northridge earthquake in ’94. We got more than a faceful of crack observations and dialog. Because of the number or magnitude of cracks the lender perspective was different then. Basically, if a crack was less than 1/8″ and there was no displacement then it was not a concern. It was also felt at that time if a crack was “old” even if it exceeded the gap or displacement limits, it was not a major concern.

    So, I might add that if you are in earthquake country, the limits for observing and reporting a crack are somewhat looser than in other areas. If you are in an expansive soil area, then more cracks can be expected. Same goes for hillside neighborhoods.

    Cracks in concrete either flatwork or stem walls are usually more of a concern than in stucco, plaster or drywall. Again, width, displacement and age are factors to be considered.

    Just my thoughts.

    Russ

    • says

      Fantastic comment, Russ. This is what I like about blogging because the comments can really build on the post. I like how you said, “width, displacement and age are factors to be considered.” Very well said. Your comment underscores how different markets might have different types of cracks too. Thanks Russ.

  3. says

    Great topic Ryan. I think we need to proceed with caution when it comes to cracks, especially with the increased scrutiny and liability appraisers are under. We are first and foremost appraisers so we should leave the structural issues to engineers or someone else that has more expertise in that area.

    • says

      Thank you Tom. Well stated. We do need to know our expertise and operate within that. Bottom line. The same holds true for real estate agents giving tax or legal advice. That’s probably not the best move. The interesting part though is we do see cracks all the time, so there is a very real dynamic of having to decide what to call out and what to not call out. Very important.

  4. says

    Hi Ryan
    Great post man. This is such an important topic to discuss and you’re right the comments really build up on what you’ve actually posted as a foundation. It may be a conflict of interests, but I tend to agree with both Russ and Tom. Their point of views are two different sides of the same picture. Keeping the info you’ve given in mind combined with Russ and Tom’s views you can go for an almost perfect appraisal where cracks are concerned.

  5. says

    Great post, Ryan. I like that you mentioned how cracks could be subjective and dependent on the area. If an appraiser familiar with the area (or engineer/inspector, as Tom said above) deems a crack purely cosmetic, without any effect on the integrity or livability of the house, then there’s not really much that can be done other than go through with the home and repair it as necessary. If it really is that big of a problem for the buyer, they may have to look for another place.

  6. says

    I’m planning on getting my house appraised and was worried about a crack. Thanks for the advice about how cracks are common and are inevitable. I’ll have to see about possible getting the crack repaired. Now I just need to find a reputable and professional appraiser.

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