September 22, 2017

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FHA Appraisal Questions: Defective Conditions

A reader asks a question about FHA appraisal issues: “Bought a house that was supposedly totally renovated about a 1.5 months ago. Finding out about major issues and violations in the house. There were a lot of concealed things hidden…found they had unlicensed contractors.”

“Didn’t have the money to do a regular home inspection. People were saying FHA does their own home inspection to make sure house is safe…problems with windows plumbing illegal hookup with water main electrical box etc. Have to make a payment to mortgage plus fighting with seller to get licensed contractors…please tell me why didn’t FHA see these issues.”

FHA appraisals must never be confused with a home inspection. The FHA and HUD warn borrowers of this in a document found on the FHA/HUD official site titled, For Your Protection, Get A Home Inspection which states in part:

“An appraisal is different from a home inspection and does not replace a home inspection. Appraisals estimate the value of the property for lenders. An appraisal is required to ensure the property is marketable. Home inspections evaluate the condition of the home for buyer.

Borrowers who do not pay for the optional home inspection cannot make a truly informed purchase, and it is strongly recommended that borrowers do not rely on the appraisal since FHA and HUD make it clear on their official site that the FHA appraisal is a tool intended for the lender and NOT the borrower.

The FHA appraisal is NOT a seal of approval on a home, it is not a guarantee that a home is defect-free. It is designed to insure that a home meets minimum standards.

Borrowers who have issues with a home after loan closing may need to consult legal counsel to help them determine what course of action or legal remedies may be available to them.

It is crucial that borrowers understand the difference between a home inspection (which is intended as a very complete top-to-bottom review of a property) and an FHA appraisal which is a tool for the lender to determine fair market value of the property and to insure it meets minimum standards.

FHA appraisals and the FHA appraisal fee are a standard part of the FHA loan process. The home inspection is an optional part of this process, but in reality no borrower should ever consider the inspection as anything but a means to make a properly informed decision on whether or not to buy the property.

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