Flooring allowance in purchase contract

[Mr Rex]

It is not our job as an appraiser to enforce the terms of a contract.

We are appraising the real estate rights transferred. In this case, the rights transferred includes new flooring. No different than if the contract included a garage addition or a deck etc etc etc etc. R Scott seems to be hung up on enforcement. Explain how this is any different than if this were a new house and the plans and specs called for carpet and vinyl and when you inspected it was raw OSB flooring. No difference. Subject to. Amazing responses given the "time of service" some folks claim. Maybe time for a few refresher courses on Appraisal 101.

 

[William K]

You folks are missing the boat. If the contract included an allowance for a 12 x 12 deck to replace a set of perfectly safe and sound steps, then you wouldn't be clouding the issue with cosmetics. Subject to. The contract price includes new flooring via an allowance. The buyer could and would have offered and contracted for a lower price without the new flooring. Subject to.

My Bold

And how would it affect the valuation of the subject in "as-is" condition? Our job is to present an opinion as to the Market value Of the subject.
If the contract stated the seller was going to provide a new car am I to infer this would affect the outcome of your appraised value? The "as-is" value is appropriate. The client can decide if they wish to have a "subject to" value but FHA considers flooring to now be cosmetic.

 

[Mr Rex]

If you were not required to analyze the contract, I might agree. But once again, explain how this is any different than plans and specs. The meeting of the minds includes the new flooring. Where does it say in FHA to appraise AS IS when there is contractual agreements for conditions contrary to AS-IS. Find it, quote it, and I will agree. It does not exist. You folks are mixing FHA reduced cosmetic requirements with simple appraisal methodology.

In your theory, if I have proposed construction I should appraise it as is, a vacant lot, and thats acceptable because FHA is only concerned about safety issues and a vacant site isn't dangerous.

 

[RSW]

Show me where it says I have to appraise it subject to.

 

[Mr Rex]

The contract that says there is an allowance for new flooring. The buyer has agreed to buy this house with new flooring provided by the seller via an allowance. Feel free to appraise it as is, but you have not appraised the subject that the buyer has agreed to buy, and as such have not met SR 1-5 and/or SR 2-2, b, iii. The property that is subject to the assignement has new flooring per the contract.

 

[RSW]

The only way I can see doing a subject to appraisal is if the lender/client -HUD/FHA requires it in the scope of work. The HUD/FHA guideliness says it is cosmetic. If it were part of the 3s's then make it subject to. I proposed construction appraisal is outlined in the scope of work to be done subject to. I don't see the connection here.

 

[Mr Rex]

The only way I can see doing a subject to appraisal is if the lender/client -HUD/FHA requires it in the scope of work. The HUD/FHA guideliness says it is cosmetic. If it were part of the 3s's then make it subject to. I proposed construction appraisal is outlined in the scope of work to be done subject to. I don't see the connection here.

FHA does not trump the contract, cosmetic or not. Would it change your mind if the allowance was for a roof replacement? Would it matter if the roof was worn out or just ugly? Forget FHA for a moment and consider USPAP. If I sell you a house and agree to replace the carpet, under USPAP you are required to analyze the contract and its effect on the market value. Why are you making such a leap for FHA? If this was a conventional loan and the contract included new flooring would you insist on appraising as is ignoring the contract terms?

 

[PropertyEconomics]

My Bold

And how would it affect the valuation of the subject in "as-is" condition? Our job is to present an opinion as to the Market value Of the subject.
If the contract stated the seller was going to provide a new car am I to infer this would affect the outcome of your appraised value? The "as-is" value is appropriate. The client can decide if they wish to have a "subject to" value but FHA considers flooring to now be cosmetic.

Im sure you are correct about FHA considering flooring to be cosmetic .. in those instances where its worn and you are to appraise the subject "as is" ... ie not requiring its repair.
FHA on the other hand, has no jurisdiction over a contract and the contract calls for a flooring allowance and it would be part of the purchase price and therefore must be reflected in the analysis. To do otherwise is a violation of USPAP .. and USPAP trumps FHA too.
If you firmly believe that FHA will not allow you to consider the flooring allowance (replacement) then I would suggest to you .. that you may need to decline the assignment as the client has made an unreasonable request which is contrary to contractural law which results in an assignment unacceptable under USPAP (state law in my case).
I would strongly suggest a call to FHA presenting the actual terms of the contract and ask for guidance. If they say no subject to ... the Id say no appraisal.

 

[Hamlet]

The only way I can see doing a subject to appraisal is if the lender/client -HUD/FHA requires it in the scope of work. The HUD/FHA guideliness says it is cosmetic. If it were part of the 3s's then make it subject to. I proposed construction appraisal is outlined in the scope of work to be done subject to. I don't see the connection here.

We are still required to analyze the sales contract. The contract says the borrowers are buying the new flooring, and FHA is insuring the loan on a house with new flooring. If the flooring isn’t installed as of the effective date, why would you not make it subject to?

I don’t see the connection between analyzing the sales contract and FHAs criteria on the 3 S’s.

 

[Scott FL]

Property in need of replacement flooring is not in average condition.

The buyer and seller agreed, the property is not in average condition. If the flooring needs replacement, as reported in the contract by the buyer, seller and their agents, it is unlikely that this issue is only cosmetic.

The amateur buyer and seller agreed, this is not just a cosmetic issue, they in their non-professional opinions observed the flooring and reported it in the contract as being a deficiency in need of replacement. This is generally known by appraisal professionals to call for a 'subject to' report with conditions necessary to bring the property back to average condition fully discussed. Amateurs sometimes characterize this as 'a problem.'