Flooring allowance in purchase contract

[Mr Rex]

We appraise the property not the contract. If the property needs to have replacement floor covering to meet MPR then subject to. If not then we appraise as is and disclose the terms in the contract.

We disagree. New floor coverings are part of the subject that they have contracted to buy.

 

[PropertyEconomics]

We appraise the property not the contract. If the property needs to have replacement floor covering to meet MPR then subject to. If not then we appraise as is and disclose the terms in the contract.

The purchase is for a home WITH new carpet. I personally dont think its a sales concession ... it is term of the sale and the buyer would not have purchased at the price they did without having new carpeting. Its not like the seller gave $5,000 off the sales price OR inflated the price and then gave the money back .. a true concession.
Compare with other homes and see if the new carpeting increases value. In any event, the contract calls for and the seller must install new carpeting (or pay for it).
If the appraiser does not reflect new carpet, which isnt there but which is part of the contract, how can an appraisal be done of what the buyer purchased?

 

[William K]

I received an FHA request today. The property is a short sale and the home is in average condition. The sellers have given the buyers a flooring allowance to install new carpet and tile, and I believe that the buyer wants the house to be appraised as if it has new flooring.

I believe that you can complete a "subject to" appraisal on an FHA (203b), but I wanted to get some more opinions. I also believe that I am correct in my assumption that there will need to be a recertification of value once the flooring installation has been completed.

Any thoughts?

Lets get back to what the original post stated!

"The property is a short sale and the home is in average condition." Home is in Average condition- No repair mentioned here

"The sellers have given the buyers a flooring allowance to install new carpet and tile"- OK , I report the contract conditions and analysis

"and I believe that the buyer wants the house to be appraised as if it has new flooring." The buyer is not your client! What does your client want?

"I believe that you can complete a "subject to" appraisal on an FHA (203b)" Yes you can.

"I also believe that I am correct in my assumption that there will need to be a recertification of value once the flooring installation has been completed." - Wrong!, FHA appraisal is good for 6 months, no recertification of value. Could have a Re-inspection for flooring, not a recertification.

Now the OP stated the property is in AVERAGE CONDITION. This would seem to indicate the property meets HUDs , MPS.
The OP also states the property is being sold as a "SHORT SALE" which would then indicate that the value is not a consideration ( e.i. it won't appraise at least at sales price without the new flooring).
Soiled carpeting is now being stated by the OP which was not part of the original post. ("AVERAGE CONDITION"). HUD does not consider soiled carpeting to be an issue but rather now a cosmetic item.
The enforcement of the contract is not the appraiser's job.

(If the seller was to be giving the buyer a $20,000 credit at closing for a decorating allowance would the appraiser make the appraisal "subject to" $20,000 in decorating?)

The client is the one to determine if they want the appraisal "subject to" the condition set forth in the contract, or they can say do it "as-is" because it is a short sale ( value is not an issue) and the property meets HUDs MPS.

Again read the original post!

It really doesn't matter if it is FHA or Conventional it can be appraised in "as-is" condition. The client is the one to decide.

 

[William K]

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.

Where exactly in USPAP does it state you can not appraise a property in "AS-IS" condition when the contract calls for a credit to be given at closing?
USPAP states to analyze contract,
" Contract has been reviewed , per the contract the seller is providing the buyer an allowance at closing for new flooring. The final Opinion of Market Value provided in the appraisal of the subject is in "AS-IS" condition with no consideration being given to the flooring allowance."

Where does this violate USPAP?

 

[William K]

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.

MY BOLD

Not at all , because the client would have ordered an appraisal to be done in accordance with FHA new construction guidelines which state to complete the appraisal "subject to"! ( covered in your scope of work, purpose of the appraisal)
Apples and Oranges!

Lender contacts you to appraise an existing property which is being sold and orders it as an FHA appraisal request, your job is to appraise it in accordance with FHA guidelines.
Where does FHA say to the appraiser , It is the appraiser's responsibility to ensure that the contractual obligations are met and enforced by making the appraisal "Subject to" and to give consideration of such terms in the final opinion of value, even when they are above FHA minimum property standards?

 

[CANative]

"I also believe that I am correct in my assumption that there will need to be a recertification of value once the flooring installation has been completed." - Wrong!, FHA appraisal is good for 6 months, no recertification of value. Could have a Re-inspection for flooring, not a recertification.

Sounds like someone is getter their non-appraisal terms mixed up. If you do the appraisal "subject to" some condition then a "recertification of value" is needed when the condition is corrected. A "recerttification of value" in the classic sense is not a update or new appraisal. It's just confirmation by the appraiser that the conditions called for have been met. For HUD/FHA it would be reported on a CIR.

The purchase is for a home WITH new carpet. I personally dont think its a sales concession ... it is term of the sale and the buyer would not have purchased at the price they did without having new carpeting.

No. They purchase a home with old carpet and got the seller to give them some money for new carpet. The buyer did not purchase the home at the new carpet price. They purchased at the old carpet price.

 

[RSW]

I think the original post said the seller was to install floor coverings, not give an allowence.

 

[RSW]

Sorry! I was wwwwww wrong! Good thing I have E&O Insurance. The seller is to give an allowence per the original post.

 

[Scott FL]

The flooring is clearly not a cosmetic issue.

The property currently is in fair condition not average or at a minimum something less than average in its current condition. Unless of course 3 comparables (ok maybe 1 at least) are readily available with kennel club carpet making it average for the canine infested neighborhood.

The contract indicated that upon arrival at inspection the appraiser would find more than a cosmetic issue (as noted later in post #24).

Page 2 2005-48
A property with defective conditions is unacceptable until the defects or conditions have been remedied and the probability of further damage eliminated. Defective conditions include:
--defective construction
--other readily observable conditions that impair the safety, sanitation or structural soundness of the dwelling

HUD anticipates the appraiser understands this to be a ‘subject to ‘assignment..

 

[CANative]

Carpeting is not in the MPRs.

Minimum Property Requirements (MPR) and Minimum Property Standards (MPS)
For new construction to be eligible for FHA financing, it must comply with HUD’s Minimum Property Standards (including 24 CFR 200.926d). Existing construction must comply with HUD’s
Minimum Property Requirements (HUD Handbook 4905.1). .

In the performance of an FHA appraisal, the appraiser must denote any deficiency in the appropriate section(s) (site issues in the site section, improvement issues in the improvements section) of the appraisal report. The appraiser is to note those repairs necessary to make the property comply with FHA’s Minimum Property Requirements (MPR) or Minimum Property Standards (MPS) together with the estimated cost to cure. The lender will determine which repairs for existing properties must be made for the property to be eligible for FHA-insured financing.

Cosmetic repairs are not required; however, they are to be considered in the overall condition rating and valuation of the property. Examples of cosmetic repairs would include surface treatments, beautification or adornment not required for the preservation of the property. For example, generally, worn floor finishes or carpeting, holes in window screens, or a small crack in a windowpane are examples of deferred maintenance that do not rise to the level of a required repair but must be reported by the appraiser.