Conventional loans - subject to repairs

[Niki Dransfeldt]

I'll add that while it seems like a big money maker for the appraiser to run back out and take a photo for a final, when that property is 45 minutes to get there and 45 minutes back, it's a total time waster as the lender always waits until the day before closing and then its an emergency. I always wonder why the seller wouldn't go ahead and fix something like that before listing it.

I think the reason for this is we don't know what to fix. In 5 years I've never had this discharge valve listed on a conventional loan appraisal. I wouldn't even thought to tell the seller to fix it. There's no list, at least not that I've ever found, that says these are things that are required on a conventional loan for safety. So how do we fix these items ahead of time if we don't know what they are?

And I think it also has to do with location. The average home price in my county is $125,000. That could potentially be a very lengthy list of repairs to tell a seller to do before even selling. Ideally, I would love every seller to get an inspection before listing and fix everything on it. It's just not practical here.

 

[Niki Dransfeldt]

That's happened for 30 years at least. I recall going back to see if they installed the closet doors on a new construction. I have done a lot of these for $75 and spent an hour driving to and back from the property, then filling out the completion forms.

If you are going thru FNMA or FHA, VA you should anticipate such. If an in-house (non-conforming conventional) loan, then they probably will waive minor repairs...or as most of my clients do, check it themselves. I don't do secondary market anymore because it is time-consuming, unprofitable and higher risk appraisals than other assignments.

I do understand this. I deal with a lot of FHA, and RD loans in my area. These items are expected to be fixed. We are aware of that and educate our sellers ahead of time. But these items usually never pop up on a conventional loan. It's very rare. We are seeing more and more of it recently. Your comment is interesting to me about appraisals for the secondary market. I'll be honest, I had no idea there was a difference. I thought an appraisal was an appraisal, minus The extra safety check with a FHA, VA or USDA loan. I've recently been using mortgage lenders a lot more because there's so much more responsive and in this quickly moving market, I need somebody that's available 7 days a week. Local banks are 9:00 to 5:00 and aren't always easy to get a hold of. But now I am seeing the value in a bank that is able to do an in-house loan.

No. They have to return to the house or lie on their certification. It's no money maker for the appraiser.

If they do a home inspection, they'd be stupid not to.

 

[Niki Dransfeldt]

It's always been true that FHA and VA appraisers are to report safety issues. Many appraisers who also do conventional work do also. It's likely that appraisers' Clients are looking at that issue more carefully. Insurance companies have been known to deny claims based on improper TPR valves.

I've done dozens of conventional loans with this same lender and have never had the appraiser call out a TPR valve discharge pipe. There is nothing wrong with the valve, they just want it discharged closer to the floor. And I completely understand that. I've been to an home inspections to understand the purpose. It's just never been flagged conventionally for me before. And unfortunately, it's probably 50/50 whether a house has one in my area.

The water heater is arguably one of the most dangerous pieces of equipment in dwellings. A runaway water heater.. one in which all the safety features have failed.. has the explosive equivalent of 10 pounds of dynamite for every gallon of capacity (so I've been told by experts). That means that a fifty gallon water heater could have the explosive power of a 500 pound bomb. Not something to be casual about.

I understand that. Then it should be called out on every single appraisal. It's the hit and miss on these appraisals that I'm really struggling with. A standard across the board would be nice.

 

[alebrewer]

So FHA is more up front about what HAS to be called out. The GSE's tend to leave it up to the appraisers to determine (for the most part) whether something rises to the level of health and safety (TPR valve) or structural security. Agreed that the increased ambiguity generally results in different levels of scrutiny, but look at it this way: If the appraiser called it out, AND if it really is something that could affect the safety of the inhabitants, wouldn't you WANT to have that replaced/remedied - for the buyers' sakes?

 

[Niki Dransfeldt]

So FHA is more up front about what HAS to be called out. The GSE's tend to leave it up to the appraisers to determine (for the most part) whether something rises to the level of health and safety (TPR valve) or structural security. Agreed that the increased ambiguity generally results in different levels of scrutiny, but look at it this way: If the appraiser called it out, AND if it really is something that could affect the safety of the inhabitants, wouldn't you WANT to have that replaced/remedied - for the buyers' sakes?

Yes absolutely! But it's not up to me. I really think the problem is location. There's a lot of times where my buyers have no extra money. They are already getting credits from the sellers to cover closing costs. They are scraping up every dime of their savings just to buy a house. They don't have money to pay a plumber to make a repair. And the seller, who wants to sell as is, gets upset that they have to make a repair. These types of things kill deals because everyone gets upset. A lot of our sellers, and agents, specifically will only take a conventional loan because they want to avoid any issues during the appraisal. Then when this pops up it turns into a big argument. You sure would think a seller would like to fix something like that, no questions asked, to protect themselves even. But that doesn't seem to be the school of thought around here.

 

[Niki Dransfeldt]

So FHA is more up front about what HAS to be called out. The GSE's tend to leave it up to the appraisers to determine (for the most part) whether something rises to the level of health and safety (TPR valve) or structural security. Agreed that the increased ambiguity generally results in different levels of scrutiny, but look at it this way: If the appraiser called it out, AND if it really is something that could affect the safety of the inhabitants, wouldn't you WANT to have that replaced/remedied - for the buyers' sakes?

And I guess this would be a great topic for me to start. What are conventional loan appraisers top safety things that they're going to call out on every loan. Maybe that would help me gather a bit of a mental list so I can check these things. This TPR valve, and I shouldn't just say TPR valve because the valve is on there. They just want the discharge pipe on. That's a first for me.

 

[alebrewer]

And I guess this would be a great topic for me to start. What are conventional loan appraisers top safety things that they're going to call out on every loan. Maybe that would help me gather a bit of a mental list so I can check these things. This TPR valve, and I shouldn't just say TPR valve because the valve is on there. They just want the discharge pipe on. That's a first for me.

TPR's can be a bit tricky, but in general - you want one on there - AND you want a discharge pipe on there, as without one you potentially could have structural issues should the TPR valve go off. In general, though, the items called out SHOULD be similar... - broken windows, security bars without quick release, uneven floors/sticking doors/cracks, water damage, evidence of wood rot/infestation, exposed untreated wood (i.e. unpainted), lack of railings for steps, etc. Just think in terms of items that would affect the safety of the inhabitants or the structural integrity of the improvements. Some appraisers will even call out peeling paint on F/F loans - simply because there COULD be a lead based paint issue.

 

[Niki Dransfeldt]

TPR's can be a bit tricky, but in general - you want one on there - AND you want a discharge pipe on there, as without one you potentially could have structural issues should the TPR valve go off. In general, though, the items called out SHOULD be similar... - broken windows, security bars without quick release, uneven floors/sticking doors/cracks, water damage, evidence of wood rot/infestation, exposed untreated wood (i.e. unpainted), lack of railings for steps, etc. Just think in terms of items that would affect the safety of the inhabitants or the structural integrity of the improvements. Some appraisers will even call out peeling paint on F/F loans - simply because there COULD be a lead based paint issue.

I was always told chipping paint only mattered on an FHA/VA/USDA loan. It didn't matter on conventional unless it was rotting wood that could be a structural issue.

Most of the houses we sell around here have broken windows. They even updated our contracts to say if the windows are fogged or do not stay up on their own, it cannot be considered a defect. Unless you just mean broken glass?

This has been a very interesting conversation! These types of items are generally never called out on conventional loans in my area. I'm thinking that maybe they are in other areas and/or states? Interesting!

For example, handrails on more than two steps is never called out here except for an FHA loan.

 

[CGinMN]

Fannie Mae gives very ambiguous guidance on these issues, limiting their liability and forcing the lender and appraiser to make their own interpretations based on their risk appetite. Freddie is a little clearer. Lenders generally provide little guidance on their "safety" requirements, leaving these interpretations up to the appraiser. Some appraisers have lax interpretations, while others have strict interpretations. Not everyone will have the same interpretation because everyone is balancing their own interests and risk. The status quo will prevail absent more clarity, but that is unlikely.

If I was in your position I would not focus on the appraier, otherwise, everyone is going to get worked up into a frenzy over something they won't be able to change. Focus instead on working with the parties to get a quick resolution. This is a normal part of transacting and financing residential real estate. At the very most, a T&P valve installed by a plumber split 4 ways is $75 each. For loans sold to Fannie, lenders can now skip the 1004D and use the Completion Alternatives which requires a borrower attestation letter with supporting evidence, such as a photo and an invoice from the plumber.

 

[Niki Dransfeldt]

Fannie Mae gives very ambiguous guidance on these issues, limiting their liability and forcing the lender and appraiser to make their own interpretations based on their risk appetite. Freddie is a little clearer. Lenders generally provide little guidance on their "safety" requirements, leaving these interpretations up to the appraiser. Some appraisers have lax interpretations, while others have strict interpretations. Not everyone will have the same interpretation because everyone is balancing their own interests and risk. The status quo will prevail absent more clarity, but that is unlikely.

If I was in your position I would not focus on the appraier, otherwise, everyone is going to get worked up into a frenzy over something they won't be able to change. Focus instead on working with the parties to get a quick resolution. This is a normal part of transacting and financing residential real estate. At the very most, a T&P valve installed by a plumber split 4 ways is $75 each. For loans sold to Fannie, lenders can now skip the 1004D and use the Completion Alternatives which requires a borrower attestation letter with supporting evidence, such as a photo and an invoice from the plumber.

I appreciate that info. And it does make sense. Everyone's trying to pass the buck of liability.