August 19, 2017

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FHA Appraisal Problems: A Reader Question

FHA appraisals establish the fair market value of the home.A reader asks, “I had an FHA appraisal and that came down said everything was in good working order, inspection on roof and all windows. Everything said it was old but good. Bought the house, got $5,000 off for repairs but turns out all windows need to be replaced. Roof needs to be replaced, central air unit needs to be replaced (which was done). But windows are all broken, don’t work and roof is leaking, all plywood needs to be replaced…is there anything we can do or is this all on us?”

The implication of this reader question is that the reader did not pay for the optional (but critically important) home inspection. We can’t speculate on what actually happened, but all borrowers should know that it is stated FHA/HUD policy to encourage all house buyers to pay for the optional home inspection.

It’s also FHA/HUD policy to actively discourage borrowers from relying on the FHA appraisal as some kind of “approval” or guarantee from HUD that a property is defect-free. The appraisal process is NOT intended to detect all problems with a home or to act as a promise to the borrower that a home is 100% suitable. Appraisals are for the lender, not the borrower.

The FHA asserts this in the Single Family Handbook. where it defines the role of an FHA appraiser and the appraiser’s function in the home loan process:

“Appraiser refers to an FHA Roster Appraiser who observes, analyzes, and reports the physical and economic characteristics of a Property and provides an opinion of value to FHA. An Appraiser’s observation is limited to readily observable conditions and is not as comprehensive an inspection as one performed by a licensed home inspector.”

FHA appraisals establish the fair market value of the home and determine that the property, upon visual inspection, meets the FHA’s basic minimum requirements. That is all. Borrowers who trust this visual inspection of the property to give them an informed description of the home’s condition can, and often are, quite disappointed with the results as the appraisal was never intended to provide this service.

Borrowers cannot make an informed purchase without paying for the home inspection. This is a borrower-initiated process, and you’ll need to find a licensed professional in your area who offers home inspection services. A realtor or other industry professional may be able to recommend a home inspector in your area. Remember that both appraisals and inspections are services rendered, and are paid for as such-the payment of your appraisal fee and inspection fee are rendered no matter what the outcome of the appraisal.

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