Lender asking for an "as is" appraisal when subject needs possibly significant repairs.

[TripFee]

New appraiser here and I think I messed up. My first job and home had what appeared to be significant water damage on the family room ceiling which most likely came from the 2nd floor balcony directly above. The basement also had signs of water damage in the 1/2 bath and possible mold. There was no current dampness as far as I could tell. The lender asked for the appraisal to be "as is" which I did. I explained that I wasn't an inspector/water damage/mold professional and that I was basing my condition adjustments on what I could physically see and that I reserve the right to change my opinion if the damage is found to be more severe (extraordinary assumption) etc. Other than the damage subject was in decent condition with an updated kitchen and bath. I gave subject a low C4 condition based on the damage I could see and used comps that I needed some repairs/updates. I feel I should of made the report "subject to." Any thoughts?

 

[TMG]

"As-is" usually includes a cost to cure. Did you include that?

"Subject to" usually comes into play if there are serious issues that affect safety, security, soundness, where you cant estimate a cost to cure. Most lenders want as-is for ease of loan process. If there are significant issues, and you cant make it as-is, the engagement letter usually instructs you to call them, and find out if they are going to proceed.

Sounds like you did ok so far, that you thoroughly disclosed the issues. One way or another, it will iron itself out.

 

[TripFee]

I did not include a cost to cure I made a condition adjustment and explained that in the addendum. My "mentor" advised me to do that but I feel his advice is questionable. I did contact the lender and explained the damage and they told me to do the report as is.

 

[Alsie35]

You're OK given the CYA language you inserted regarding the reported conditions. If the lender did not request an estimated "cost to cure" after reviewing your report, you're OK there too. Usually they will, but that is on them if you did the full disclosure of observable conditions. You are correct - you are NOT a property inspector, but you DO have a duty to report what you see.

You avoided a common newbie pitfall that could have gotten you into trouble: pretending not to see what is obvious in photos and not reporting it.

You're on the right track. Keep at it.

 

[Jayjay25]

"As-is" usually includes a cost to cure. Did you include that?

"Subject to" usually comes into play if there are serious issues that affect safety, security, soundness, where you cant estimate a cost to cure. Most lenders want as-is for ease of loan process. If there are significant issues, and you cant make it as-is, the engagement letter usually instructs you to call them, and find out if they are going to proceed.

Sounds like you did ok so far, that you thoroughly disclosed the issues. One way or another, it will iron itself out.

It is acceptable to use a “cost to cure” or to estimate repair costs in an appraisal. It is not appropriate to use a “cost to cure” in the comparable sales analysis to render an appraisal “as is”. Adjustment made in the sales comparison analysis are for market reactions only.

I just reviewed an appraisal of a 3 unit home with 2 gutted units. The appraiser made a $40,000 “cost to cure” adjustment to all of the comparable sales and submitted an “as is” appraisal. They even completed the rental analysis and income approach and marked the box stating there are no deficiencies or adverse conditions that affect livability.

IMO, “Cost to cures” in the sales comparison analysis are just a way for loan officers to try and close loans on homes with condition issues by fleecing the unsuspecting appraiser.

 

[JTip]

I gave subject a low C4 condition based on the damage I could see

No such thing as a "low" C4.

Your description of the damage sounds like a C5:
C5 The improvements feature obvious deferred maintenance and are in need of some significant repairs. etc etc

 

[The Warrior Monk]

It's the client choice on how the property is appraised, not the appraiser's. The caveat is that the client's requirements cannot be in conflict with the intended use. For example, if the assignment is a FHA assignment, the assignment must comply with FHA requirements.

With regard to "subject to," it depends on the intended user. Some intended users will require "subject to;" others will require as is. Nearly all of my lending assignments are FRTs, so it can go either way; I always ask the client how they wish to proceed.

 

[djd09]

Physical Deficiencies That Affect Safety, Soundness, or Structural Integrity of the Subject Property​

The appraisal report must identify and describe physical deficiencies that could affect a property’s safety, soundness, or structural integrity. If the appraiser has identified any of these deficiencies, the property must be appraised subject to completion of the specific repairs or alterations. In these instances, the property condition and quality ratings must reflect the condition and quality of the property based on the hypothetical condition that the repairs or alterations have been completed.


If the appraiser is not qualified to evaluate the alterations or repairs needed, the appraisal must identify and describe the deficiencies and the property must be appraised subject to a satisfactory inspection by a qualified professional. The appraisal may have to be revised based upon the results of the inspection. If so, the report must indicate the impact, if any, on the final opinion of value. The lender must review the revised appraisal report to confirm that no physical deficiencies or conditions that would affect the safety, soundness, or structural integrity of the property are indicated. A certification of completion is required to confirm the necessary alterations or repairs have been completed prior to delivery of the loan.

Infestation, Dampness, or Settlement

If the appraisal indicates evidence of wood-boring insects, dampness, or abnormal settlement, the appraisal must comment on the effect on the value and marketability of the subject property. The lender must either provide satisfactory evidence that the condition was corrected or submit a professionally prepared report indicating, based on an inspection of the property, that the condition does not pose any threat of structural damage to the improvements.

B4-1.3-06, Property Condition and Quality of Construction of the Improvements (03/01/2023)

This topic contains information on property condition and quality of construction, including:

selling-guide.fanniemae.com

 

[The Warrior Monk]

The OP didn't specify assignment type, so Fannie requirements might not be applicable.

The office I used to work in actually sold a property with a blatantly illegal use and various condition problems, and it was still financed. Obviously not through any of the GSTs, but a hard money lender did so, at an interest rate reflecting the risk.

 

[Zoe]

That is like foreclosures. You do them "as is" and "as repaired" on many. You did okay. They are probably planning on keeping it in house. It wouldn't fly FHA or VA "as is". It may not fly GSE.

It is a health and safety issue and you told them about it. Water can do serious damage to a house. Real serious and quick. Then you got the mold issue too. If they are planning on selling to GSE, they may get you to revise it to "subject to". You have made disclaimers and there is nothing wrong with you revising report to "subject to" if they want you to. Charge them a fee for the revision.