FHA appraisal - broken sewer pipe

[ibvoor]

Hello,
I am doing an FHA appraisal. It is a 5 bedroom 2 bathroom house in C4 condition - very average. It is hooked up to public water and sewer. The hall bathroom visually looked fine, had adequate water pressure and the shower appeared as if it had been utilized not long before I arrived to do the appraisal inspection. However, this bathroom has a broken sewer pipe. I only know this because I read it in the seller's disclosure and the listing agent put remarks in the MLS Listing stating that the sewer pipe in the hall bathroom was broken and that they had gotten a quote of $20,000 from a large reputable company to repair it. I did not notice any unusual odors inside the house or outside where the pipe would have likely been buried underground. The listing agent cannot be contacted as her mother just passed away and they are burying her. No one else in her office has information about the property and this situation. The sales price appears to be below market value by approximately $20,000-$25,000. It appears to have been priced below market to allow for the buyer to make this repair. I have never appraised a house with a broken sewer line, let alone for an FHA appraisal. I am looking for advice on how to handle this. Naturally, I will disclose what I know in the report. My question is if it is necessary to condition the appraisal on the repair of this? My gut says yes, as this is a health and safety issue even there is no visual evidence of anything being broken and the bathroom "appears" to be usable. I will call FHA on Monday, but just looking to see if anyone has run across this situation before. Thank you.

 

[Terrel L. Shields]

Good question but you have call it out, "subject to" and let the chips fall where they may.

 

[glenn walker]

Place a copy of the listing with the comment in the report- Make "Subject" to inspection and if it has not been repaired or if if needs repaired FHA DE Underiter will require it to be done. And no you cannot do this "as is" the it is broken it could be very expensive to repair a flooded house. The good part is the Listing Realtors and seller cannot blame you because there the ones who disclosed it.

 

[Russ Kitzberger]

but just looking to see if anyone has run across this situation before.

Yes, my practice uses outside estimates and expert reports all the time. Since you only have one report/estimate, use that one.

In your case, with it being FHA and not a litigation project, make it "subject to". Save all the information in your workfile.

In the contract section of the report, based on your statement that the price was low and it is in line with the cost of the repair, that is a great analysis. Note that and move on.

Practically speaking, the brokers/buyer/seller will do one of a few things,

1. Increase price and seller repairs prior to closing
2. If FHA will allow they will escrow (probably not)
3. Move to a 203k loan
4. Put it back on market and try to find a cash buyer.

 

[RSW]

Any repairs over $5,000 will require an As Is appraisal and recommend the property be rejected. It would then qualify for the 203k program.

 

[glenn walker]

Any repairs over $5,000 will require an As Is appraisal and recommend the property be rejected. It would then qualify for the 203k program.

That is not true the $5,000 is the typical amount most FHA lenders will hold in an- escrow hold back. The appraiser list all repairs and does an- estimated cost to cure. On Unknown cost like a main line, a roof or something over $5,000 the appraiser makes the report " Subject " to repairs and inspections with no cost to cure because he doesn't know yet. Then the FHA DE Underwriter- requires the seller to provide her with an-Estimate from a professional who has inspected the damage and cost to repair. Often the cost is less than anticipated and a buyer or seller come up with the money and its completed prior to close of escrow. Th elender only recommends a 203-K if after the inspection the cost to cure is out of reach for the buyer and seller.

We see this fairly often with roofs or things like a main line or septic tank . The 203K is a clumsy time wasting program that everyone wants to avoid if possible If the cost of this plumbing issue is say $20,000 they could decide to do a 203K-Streamline but my guess is the buyer and seller already have a plan Anyway any repair or inspection that may reveal an- expensive cost is always done " As Repaired " or " As inspected or both by the appropriate professional. IE A Licensed contractor or plumber. THE SUBJECT only meets FHA ( MPR ) after the repairs have been completed, or in cases where an -inspection reveals the issues have been resolved -repaired-or mitigated then he/she gives a clear report and the DE Underwriter waives the condition and funds the loan.

No MPR until conditions have been cleared. Often the DE Underwriter will send a copy of the contractors report and will ask him to attach it to a 1004-D The appraiser "does " not inspect eh hidden plumbing condition because he cant see it- so he attached clearance and states based on Inspection and or repair from ABC General contractor on such and such date the sewer line is either OK or was repaired or replaced and now the property meets FHA Minimum Property Requirements. Then charge them $150.00 bucks. The truth is the DE Underwriter can waive it herself but they seem to like the 1004-D : )

 

[RSW]

The old 4150.2 says so. The 4000.1 may be different.

 

[spittman]

It doesn't meet FHA Minimum Property Requirements. You cannot select the "as is" option and then say FHA requires this to be repaired. You have to select "subject to repair" but value the property as if it were already repaired (hypothetical).

I personally would have mentioned this to the lender soon as I left inspection before typing up the report. The lender can either tell you to proceed with as-repaired appraisal, cancel the order with a trip charge/cancellation fee or they can even convert appraisal to conventional with "as-is" value.

I'm surprised the listing agent is even entertaining contracts that have FHA financing. An agent experienced with FHA knows this would not pass unless it was fixed.

 

[spittman]

Any repairs over $5,000 will require an As Is appraisal and recommend the property be rejected. It would then qualify for the 203k program.

I think you meant "repairs over $5,000 will require a Subject-To appraisal" right??? Either way the cost of the repair is irrelevant. Somes repairs less than $50 will make a property ineligible.

The old 4150.2 says so. The 4000.1 may be different.

The only time you do "as-is" appraisal for FHA is on REO properties. This is also where the $5000 escrow statement comes into play. You do not make these statements for purchases or refinance.

 

[Tom D]

$20,000 to repair a bathroom sewer line? wha da.
with FHA, 'i don't make the rules, i just enforce them'. that's what i tell everyone.
$20,000 to repair a bathroom sewer line for the whole house seems even high.