Foreclosure Appraisal Question

[JSmith43]

Let's not close it until we vote on whether it is an EA to just mention the utilities were off and appraiser assumes everything is OK except for $200 adjustment (or whatever) for the leaking toilet.

If an EA is used, doeth not the "EA" checkbox #4 need to be checked?

Fannie form catch 22.

 

[Richard Carlsen]

You did not say if it is for financing or not. If it is not, make an EA that there is nothing wrong with the heat and utilities that were shut off along with the proper EA warning to the reader/client.

If it is for lending, I would make an EA that the heat and utilities were shut off and since you have no way of determining that they were in working order, based on the specific assignment conditions to appraise the property "as is", you must make the EA. Then tell the client in the report (UW) in big letters that making an EA is contrary to most secondary market guidelines and that the appraisal, in the form ordered and completed under the assignment conditions may not qualify for use in selling the mortgage to the secondary market. Also tell the client (UW) that if the mechanicals and utilities are found to have problems, the value estimate contained in the report could be significantly effected.

I guarantee you that you will get a change to the assignment (along with another trip to the property when everything is turned on) telling you to take the EA out.

Sometimes you just have to use the rules against the client in order to get their attention.

 

[TJSum]

And what are those "minimum property standards" (show me where Fannie/Freddie says that)? They want it valued as is, there's nothing that says it can't be valued that way. I've done lots of foreclosures/REOs that were in less than ideal condition. State the condition, adjust for it, and be done with it.

Keep in mind this is not a REO assignment, per OP it is for the buyer trying to obtain a conventional loan.

Per Fannie Mae's Handbook for Appraisers, page 28 it states...

"When you determine that there are incomplete items or conditions that affect the livability of the property or physical deficiencies that could affect the soundness or structural integrity of the improvements, you MUST appraise the property subject to completion of these specific alterations or repairs."

I am sure it is online and maybe someone can provide the link, I don't have time to find the online version right now. The OP was told directly by the agent the reason for turning off the water, because yes, it does in fact affect the soundness and livablity of the improvements.

I do not know of any lender who will make a loan on a home with an ongoing major water leak that will damage the property. If the seller refuses to repair, they can just escrow this repair so that the buyer can fix it as soon after settlement as possible. No big deal.

 

[angdw]

Thanks for all the replies and yes this was a purchase of a foreclosure property, which the buyer was trying to obtain financing. Yes, the leak was substantial and flooded the hallway. The listing agent had a company come out to remove the water and the carpet will have to be removed for sure. So, as stated, I checked "subject-to" based on this information and FNMA guidelines. Meanwhile, during all of these discussions, the lender has called to confirm that indeed "subject-to" was correct and they will have to decide whether or not either party will fix this leak in order to close the deal. Thanks again for everyone's input.

 

[Ross (CO)]

Finally, post #24 answers posting #1's quandry !

".....the lender has called to confirm that indeed "subject-to" was correct and they will have to decide whether or not either party will fix this leak in order to close the deal."

Phew ! !

It never ceases to amaze.....the extent to which some might go......to allow non-client parties to impart elements of influence upon the common sense and best intentions by the appraiser to look out for their CLIENT's interest.....AND the interest of the NEXT PARTY to inherit that client's loan file ! (with YOUR appraisal in it).....regardless of how other non-clients seem to act foolishly or want to COVER UP a critical factor that can affect a lender's decision priorities.

Finally, it is decided that a SUBSTANTIAL WATER LEAK which will cause EVEN MORE INTERIOR DAMAGE if not repaired correctly and deserves certain attention and may have to be rectified.........or else this deal might not go to closing. There never was any justification to EA that problem away. Thank goodness this one realtor brought that fact to your attention. Question: Would the o.p. have had any idea that this water leak potential exists there ! ?......if they were NOT directly told, and had simply accepted a statement that the property had been "winterized' and the water was "shut off" ?

The taxpayers do NOT need to further help the mortgaging of "problem properties" !

 

[Em Tee]

Finally, post #24 answers posting #1's quandry !

Yay!!! Only 24 posts to figure out it was more than "a toilet leak".

 

[Mike Garrett RAA]

Can you appraise the property in "as-is" condition? Yes. Should you then use an extraordinary assumption? Yes. Will the water problem affect your value conclusion? Yes.

 

[TJSum]

Here is the latest from Fannie Mae regarding this issue...


15. In what situations should a property be appraised "as-is" versus "as-repaired"?

[FONT=Arial,Arial][FONT=Arial,Arial]Fannie Mae permits an appraisal to be based on the "as-is" condition of the property as long as any minor conditions, such as deferred maintenance, do not affect the livability, 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 items include worn floor finishes or carpet, minor plumbing leaks, holes in window screens, or cracked window glass. Minor conditions and deferred maintenance typically are due to normal wear and tear from the aging process and the occupancy of the property. Such conditions generally do not rise to the level of a "required repair." Nevertheless, they must be reported. [/FONT][/FONT][FONT=Arial,Arial]

[FONT=Arial,Arial]The appraiser must identify physical deficiencies that could affect the soundness, structural integrity, or livability of the property as part of his or her description of the physical condition of the property. These may include cracks or settlement in the foundation, water seepage, active roof leaks, curled or cupped roof shingles, inadequate electrical service or plumbing fixtures, etc. In situations where an adverse property condition may be observed by the appraiser but the appraiser is not qualified to decide whether that condition requires immediate repair, the property must be appraised subject to an inspection by a qualified professional. In such cases, the lender must have the property inspected and any material conditions repaired before it delivers the mortgage loan to Fannie Mae. The appraiser may be asked to update his or her appraisal based on the results of the inspection, in which case the appraiser would incorporate the results of the inspection and measure the impact, if any, on his or her final opinion of market value. [/FONT]​

[/FONT]

​

 

[TJSum]

Yay!!! Only 24 posts to figure out it was more than "a toilet leak".

To be fair the OP clarified the situation in Post #7, once it was revealed that the leak was causing damage to the home, IMO there is only one way to handle it, "subject to", if it was for a typical lending assignment.

 

[Richard Carlsen]

The appraiser may be asked to update his or her appraisal based on the results of the inspection, in which case the appraiser would incorporate the results of the inspection and measure the impact, if any, on his or her final opinion of market value.

Take this a step further: Assume you do the report "subject to" and inspection with CB4 marked with it's EA. However, inspection is made by qualified inspector and it is found that the plumbing system had frozen, damaging the old galvanized pipes as well as the 40 year old hot water baseboard heat unit boiler and the 30 year old electric water heater, requiring an nearly complete redoing of the plumbing system, new HWBB boiler and new water heater. Certainly there will be an impact as with all of this new stuff, the effective age should decline, increasing value. So all of the repairs are made with new copper plumbing up to code, a new hi-efficiency boiler with forced draft and a new gas water heater.

42 days after you deliver the report and 47 days after the effective date of the report, the lender now comes back to you and asks you to incorporate the repairs into the report.

Questions:
1. How do you handle the reporting of the new upgrades?
2. Do you reinspect the house?
3. What do you charge (if anything)?