Does a fence need to be painted to meet FHA standards?

Does a fence need to be painted or stained to meet FHA minimum property standards? During an FHA refinance an appraiser recently told a home owner that his fence needed paint or stain for the loan to work. Is that really true though? Let’s dig into this issue. I’d love to hear your take in the comments.

FHA appraisal standards for wood fence - sacramento appraisal blog

The Quick Gist: FHA requires appraisers to identify defective paint surfaces on a home’s exterior (which also includes the fence). However, this doesn’t mean a fence actually needs to be painted. Being that most fences such as cedar, cypress, and redwood are already considered a sustainable wood (or sealed or treated), they don’t actually need to be painted. Think about it practically in that new home builders don’t paint their fences and neither do the vast bulk of property owners. But if a fence has been painted in the past and now has defective paint (peeling, chipping, flaking), then the defective portion should be scraped and sealed according to FHA standards (see p 497 in FHA Manual 4000.1 for a paragraph on defective paint).

FHA-photo-by-Ryan-LundquistThe Reality: Appraisers are not trained to identify whether wood is sealed or not. Maybe some appraisers have that skill set, but most probably don’t. While on the phone with HUD yesterday I even asked them how an appraiser would specifically identify a fence that was not sealed. Crickets. The person on the phone did not have an answer other than to say FHA requires a fence to be sealed from the elements. This means a reasonable focus for appraisers would be to call out defective paint on fences, but otherwise assume the wood is sealed unless there is evidence to suggest otherwise. Does that seem like good common sense? One further point to consider is something my friend Realtor Dean Rinker said in a conversation recently. Even if the standard was the fence needed to be painted, would that also include the neighbor’s portion of the fence too? Imagine that.

14727880 - 3d illustration: a group of cans of paint and roller

Yeah, but the house was built in 1968: I’ve seen people quote the following section from the old FHA manual (or a recent FAQ) in support that fences need to be painted. The idea is that if a fence was built before 1978 when lead-based paint was used, then the home’s fence should be painted to curb any safety issue. First off, if the fence has never been painted, there is NO safety issue with lead-based paint. Thus the age of the house is not the driving issue in this conversation on fences. Most of all, this section states an appraiser should be looking for defective paint on the fence, but it does NOT state the fence needs paint. It is true FHA does not want bare wood on the house, but it is entirely normal for fences to be “bare” (keep in mind wood on fences is sealed or treated though, so it is technically not bare).

If the home was built before 1978, the appraiser should note the condition and location of all defective paint in the home. Inspect all interior and exterior surfaces – wars [sic], stairs, deck porch, railing, windows and doors – for defective paint (chipping, flaking or peeling). Exterior surfaces include those surfaces on fences, detached garages, storage sheds and other outbuildings and appurtenant structures (FHA’S 4150.2 Old Manual).

When it comes to FHA the standards aren’t always as clear as we’d like them to be. This is why it’s critical to know what the FHA manual actually says, consider the spirit of the FHA manual, be in tune with how the bulk of appraisers deal with issues, and of course use common sense.

Questions: Any stories, insight, or examples to share? Did I miss anything? I’d love to hear your take.

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The exchange of power between investors and FHA buyers

There is a clear exchange of power that is happening right now in the Sacramento real estate market. It’s as if the king of the market (cash) has announced his abdication, and one of the heirs (FHA) has quickly begun a quest to rule the throne. As cash investors have been leaving the market, FHA buyers have been picking up their slack. Of course, conventional buyers are also co-heirs to the market throne so to speak, so we cannot forget about them. Let’s look more closely below. Feel free to use these images in your newsletter, blog or social media (just give me a link back).

cash sales under 200K vs FHA in Sacramento - by Sacramento Appraisal Blog 1

Dueling for Market Power: Maybe I’m some sort of data geek, but the graph above is exciting since it shows that cash and FHA are heading to cross paths soon. In fact, it looks like they’ll meet up in one more quarter or so as long as the current pace continues. As I mentioned yesterday, cash sales have declined 12.5% since the beginning of the year in Sacramento County, while FHA has increased 3.3% in the past few months alone (or 6.4% under $200,000). Ultimately this means investors in 2014 will presumably play less of a role in shaping the direction of value and the market. Things are a-changing.

cash investor trends in sacramento - by home appraiser - sacramento appraisal blog

Here is a video to unpack the Sacramento market. It’s only two minutes long. Enjoy and share (click HERE if you don’t see the video in your email subscription).

Need to brush up on your FHA knowledge? If you’re feeling a little rusty about understanding FHA appraisal standards, it’s time to brush up on your knowledge so you are ready for the emerging market. You can check out other FHA appraisal articles I’ve written or feel free to ask questions. Also, I am sitting on a “Lunch and Learn” panel on 10/16/2013 at the Sacramento Association of Realtors called: Zombies, Vampires & FHA (you should only be afraid of two of these). Come on out and freshen up your skills.

Question: What do you think your clients would say about the graphs? I’d love to hear your take.

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Can you give “zero value” to part of a property during a sale?

I see descriptions in listings all the time to the effect of, “no value given for the pool”, “barn not included in sale” or “zero value given to the detached garage.” But is it really legitimate in the eyes of an appraiser to exclude a portion of the property because an agent, buyer or seller is not considering it in the purchase price? In short, no. Let’s consider FHA and conventional loans.

Photo of messed up kitchen - by Sacramento Appraisal Blog

The “whole enchilada” of FHA: There is no such thing in the eyes of HUD or the FHA appraiser for giving “zero value” to any portion of the property – even if the contract says so. According to FHA guidelines, everything in the parcel lines must meet FHA minimum property standards. This means if you have a dilapidated barn, it might need some repairs or even removal. If you have an old pool, it should be in working order. If there is an unfinished addition, the appraiser cannot simply ignore it. Or if a covered patio poses a safety issue, it’s a red flag. FHA is really concerned with the “whole enchilada” so to speak and not just a portion of the property (the house). In short, if it’s located within the parcel lines, the FHA appraiser will consider it within the valuation and it MUST meet FHA minimum property requirements. Bottom line.

But it’s a conventional loan and the buyer and seller have agreed: It’s important to realize appraisers cannot ignore features of a property no matter what an agent, buyer or seller might agree upon. This is not evidence of anal appraisal standards or mean-spirited appraisers, but rather something normative and necessary for valuations. The appraiser’s job is to analyze all facets of a property and any impact it might have on value. Appraisers are not bound by the agreements of a buyer and seller – even if those agreements are understandable. For instance, to take it to an extreme, imagine if a buyer and seller said, “the house is excluded from value”. Would the appraiser then only give value for the lot? Even if the house was a complete tear-down, the cost to demo might have to be considered and applied to the valuation.

Maybe the appraiser will conclude little to no real value is given for the feature excluded by the buyer and seller. But the appraiser definitely still has to at least consider the issues at hand and make that call after analyzing the market.

I hope this was helpful.

Any questions, scenarios or stories to share?

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Twitter, subscribe to posts by email or “like” my page on Facebook

The most common FHA appraisal repairs

Here is a quick video of some of the most common FHA repairs I encounter during appraisal inspections in the Sacramento area. In this video I quickly talk through 25 repair items while scrolling through photos. This is good information for real estate agents, investors and home owners since FHA is so dominant in the market. I hope this is helpful. Watch the video below (or here) and check out other FHA appraisal articles if you wish. Any questions or insight?

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Twittersubscribe to posts by email or “like” my page on Facebook