Fannie and Cost to cure

[HouseWear]

Good morning all, I have a quick question.

Got a home that has some minimal siding damage(4 sheets of T1-11 that is a little waaaavy). I was going to make the report subject-to, however, lender only accepts as-is appraisals.

Can I cost to cure this? I know a local contractor and can get a reliable bid. Does Fannie allow cost to cure?

Thanks for the responses.

 

[Randolph Kinney]

Good morning all, I have a quick question.

Got a home that has some minimal siding damage(4 sheets of T1-11 that is a little waaaavy). I was going to make the report subject-to, however, lender only accepts as-is appraisals.

Can I cost to cure this? I know a local contractor and can get a reliable bid. Does Fannie allow cost to cure?

Thanks for the responses.

Fannie Mae Selling Guide - August 20, 2013

Part B, Origination Through Closing
Subpart 4, Underwriting Property
Chapter 1, Appraisal Guidelines, Appraisal Document Standards,
Report, and Property Inspections

Requirements for Existing Construction When There are Incomplete Items or Conditions that Do Affect the Safety, Soundness, or Structural Integrity of the Property

When there are incomplete items or conditions that do affect the safety, soundness, or structural integrity of the property, the property must be appraised subject to completion of the specific alterations or repairs. These items can include a partially completed addition or renovation, or physical deficiencies that could affect the safety, soundness, or structural integrity of the improvements, including but not limited to, cracks or settlement in the foundation, water seepage, active roof leaks, curled or cupped roof shingles, or inadequate electrical service or plumbing fixtures. In such cases, the lender must obtain a certificate of completion from the appraiser before the mortgage is delivered to Fannie Mae. Although the original appraiser should complete any required certification of completion, the lender may use a substitute appraiser.

Page - 551

C4 Condition - The improvements feature some minor deferred maintenance and physical deterioration due to normal wear and tear. The dwelling has been adequately maintained and requires only minimal repairs to building components/mechanical systems and cosmetic repairs. All major building components have been adequately maintained and are functionally adequate.

Page - 596

However, the C6 rating is an exception because it indicates that the property is impacted by one or more deficiencies that negatively affect the safety, soundness, or structural integrity of the property. As a result, if any portion of the dwelling is rated a C6, the whole dwelling must be rated a C6.

Properties with a condition rating of C6 are eligible for sale to Fannie Mae provided any deficiencies that impact the safety, soundness, or structural integrity of the property are repaired prior to delivery of the loan. See Physical Deficiencies That Affect Safety, Soundness, or Structural Integrity for information related to completing appraisals on properties with safety, soundness, or structural integrity deficiencies.

Page - 597


Appraisals Completed “As Is”

Fannie Mae permits appraisals to be based on the “as is” condition of the property provided existing conditions are minor and do not affect the safety, soundness, or structural integrity of the property, and the appraiser’s opinion of value reflects the existence of these conditions.

Minor conditions and deferred maintenance are typically due to normal wear and tear from the aging process and the occupancy of the property. While such conditions generally do not rise to the level of a required repair, they must be reported. Examples of minor conditions and deferred maintenance include worn floor finishes or carpet, minor plumbing leaks, holes in window screens, or cracked window glass.

Condition ratings C1, C2, C3, C4, and C5 as previously defined are eligible for delivery in “as is” condition. Properties with the initial condition rating C6 indicate one or more deficiencies that impact the safety, soundness, or structural integrity of the property and therefore the appraisal must be completed subject to completion of the deficient item(s).

Page - 598


Just to add, you make market derived adjustments for conditions to comparable properties without the deficiency of the subject. Cost is not market derived but in lieu of no adjustments, it can be a basis for establishing the adjustment factor.

 

[HouseWear]

Thank you Randolph.

 

[CANative]

I was going to make the report subject-to,

snip

Can I cost to cure this?

No. If it was bad enough to make a repair condition then it is too bad to make an as is appraisal. No matter what the client wants.

 

[Mike Kennedy]

Got a home that has some minimal siding damage(4 sheets of T1-11 that is a little waaaavy). I was going to make the report subject-to, however, lender only accepts as-is appraisals.

Can I cost to cure this? I know a local contractor and can get a reliable bid. Does Fannie allow cost to cure?

Thanks for the responses.

C4 Condition - The improvements feature some minor deferred maintenance and physical deterioration due to normal wear and tear. The dwelling has been adequately maintained and requires only minimal repairs to building components/mechanical systems and cosmetic repairs. All major building components have been adequately maintained and are functionally adequate.

"As-is"

 

[J Grant]

Got a home that has some minimal siding damage(4 sheets of T1-11 that is a little waaaavy). I was going to make the report subject-to, however, lender only accepts as-is appraisals.

IF it is a minor deficiency as described not a safety /health hazard, then it's deferred maintenance sounds like a C4 (or C 5 but that is up to you, evaluate the house and accrued deferred maintenance as a whole), then yes it can be "as is"

If the house is appraised "as is", you don't ask the seller to cure it, so there is no need to provide a cost to cure (which is info for lender anyway). A rough idea of cost to cure for our own knowledge is good as it helps with an adjustment, if needed.

If your comps are in similar dated/deferred maint condition, you don't have to item out a line adjustment for siding, unless all your comps are superior and have no deferred maintenance (in which case you should find at least one equivalent condition house with some def maint)

Your house may have defective/worn siding, for example, but a good or avg condition roof, another comp may have good siding but an older dated roof or some interior deferred maintenance.

If you make a condition adjustment it should be market reaction and if you line item out that one area to adjust, a C2C can provide a benchmark to compare market reaction to or base it on.

 

[JSmith43]

If the house is appraised "as is", you don't ask the seller to cure it, so there is no need to provide a cost to cure

If the LO knows what he is doing, he/she will ask for cost to cure in this instance, assuming this is a F &F bound loan.


One practical point: What is causing the waviness? If that type of siding is butted tight at the overlap, it will probably warp at some point. It needs a gap, maybe 1/8 " in order to expand/contract with moisture & temperature changes. But, it is quicker & easier to slap it up tight.

I didn't check tonight, but Freddie Mac & Fannie Mae were not in sync about accepting loan packages with C5 "as is" appraisals. FreddieMac drew the line at C4.
Maybe they are in sync now, but that doesn't mean every investor will accept C5. They tend to dial it back for worse case scenario.

You can probably "as is" this wavy siding repair if it is due to the faulty install, since it is primarily of cosmetic concern. Give them a cost to cure, make sure it is reflected in the overall condition rating (communicate that point) and let the lender know it the condition affects the livability &/or marketability.

Generally, the threshold for such "as is" conditions is $2,000, so that's not an issue here. (JG, and that's why the lender will need an estimated cost to cure)

 

[Terrel L. Shields]

Got a home that has some minimal siding damage

describe and go on.

 

[J Grant]

Providing a cost to cure is optional and is a service to the lender. If you chose to do it, give an estimate or range, we are not conractors and even relying on one contractor it is still an estimate.

When I provide a c2c I put it in the addendum but put it where it makes sense and can be found easily. C2C is not a line item adjustment though it can be the basis for one after a search for market reaction is made. However, normally if one can find similar condition comps with equivalent deferred maint somewhere, doesn't have to be exact match, then those are your best comps and no line item adjustment may be needed. It may not be possible to find a comp with siding damage however a comp with an old roof needing repair or at end of economic life might be found, for example.

 

[JSmith43]

Providing a cost to cure is optional and is a service to the lender.

It's optional to be a good appraiser & know the needs of the client, I guess. Wait for the UW stip, in that case

Because the current item is pretty obviously under $2,000, the UW will probably not request it.