Necessary to Categorize Cosmetic versus Critical Issues?

[Mr Rex]

Rex,

I agree with you completely.

I quoted Appendix D.

FWIW, the following link has 4150.2 and the revised Apprendix D in a searchable pdf format. http://www.georgiaappraiser.com/

 

[Marcia Langley]

ZZ,

Deficiencies that are MPR issues have to be clearly associated (in comments) with check box 3 per FHA guidelines.

Cosmetic items are not associated with any checkbox.

If the need for an inspection by another expert arises, that has to be associated with check box 4.

You have to clearly categorize the items between those three catagories for several reasons. First, because that is the guideline. Second, because you are obligated to clearly explain how these items affected your opinion of value.

Your opinion of value is not subject to change due to cosmetic items. Those items are assumed to continue to be just as they are and are reflected in your condition rating. You will seek comparables that have similar condition deficiencies and your opinion of value will reflect that.

Items associated with check box 3 are assumed repair-complete in your opinion of value. Your opinion of value is subject to the HC that as of the effective date those items have been repaired. You will seek comparables that do not have those deficiencies. If these repairs are never made, your opinion of value is subject to change.

If inspections by other experts are necessary, your opinion of value as of the effective date is subject to the assumption (EA) that no other deficiencies will be revealed through the inspection. This is an "as is" opinion of value that is subject to change if further deficiencies are discovered. You will seek comprables that do not have any of the potential issues that could arise from those inspetions.

In order for any reader to understand what your opinion of value is based on (credible report) they must be able to clearly understand which items are associated with which box. It is imperative that you clearly categorize them.

Now, the lender will have some leeway as to how he proceeds. He may decide to require a repair on an item that is only cosmetic and that you have categorized as such. That is between him and his borrower and does not affect your appraised opinion of value. Your opinion of value as of the effective date still stands and still assumes that repair was never made.

Also, the lender may decide to waive a check box 3 item. That is also his choice if FHA will accept it. If he does make this choice and orders the compliance report from you, you still have to answer the questions on that form based on the items that were associated with check box 3 in your appraisal. Not based on any waivers that the lender may have granted. If all of the check box 3 items are not complete, you must say so in that compliance report. When the lender decides to waive an MPR item, he is taking that risk upon himself. He is not, and does not have the power to change your reporting obligations as they relate to MPR. Your obligations are spelled out in the guidelines.

The lender may also decide to waive expert inspections. He can do that (with FHA permission) and should never even mention it to you because you have no need to know.

Remember, the compliance report is only for check box 2 or 3 items. It is not used to discuss unrelated items like cosmetic issues or EAs.

Which brings us to a third reason for clear categorizing of the items. It needs to be very clear between you and your client exactly which items are being reported as "complete" on that form. If the associated items were not clear in the report, and you checked "all items are complete" on that form, how would your lender know which items you meant? He might get confused and think you meant something that was never called for and never completed.

The whole thing is very cut and dried (logical) and when followed properly nobody gets misled or takes on unnecessary liability.

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The hard part is figuring out which items belong with which category. Once that has beed determined, the reporting and handling of the items is very cut and dried.

 

[Mr Rex]

Anymore questions? Marcia nailed it down according to FHA standards.:new_2gunsfiring_v1:

 

[ZZGAMAZZ]

Only the following:

1) Is a C2C established for issues identified subject to CB3 as recommended in a prior post; or is this approach client specific? If so, does one actually discuss these issues in advance with every client in anticipation of the potentialities? If so, how would the client know unless the conversation was conducted between the appraisal and the underwriter to whom the completed report later will be submitted.

2) If a litany of cosmetic issues combine to lower the overal condition of the property, would a condition adjustment be feasable in the SCA in instances where an adequate sample of similar condition properties, e.g., "fair" are not being marketed.

 

[Marcia Langley]

ZZ,

Q1, FHA guidelines ask for the c2c on all check box 3 items. One thing they especially want to know is whether the total c2c amount for all items passes the threshold of requiring the loan to be changed to a rehab loan. I think they call it a 203 program or something like that. I've never done one. The homeowner is going to have to get bids, anyway and if the repairs are fairly significant you can defer the cost estimate to that bidder.

On your question #2, yes, if you have to use a comp that is in superior condition it would need to be adjusted. But you'd need as many in similar condition as you could get. Condition adjustments don't play well when they are accross the board. Adjustments should be market derived (you know, not c2c cost) and it may be very hard to demonstrate the credibility of the condition adjustment if it is accross the board.

 

[TJSum]

Very good answers regarding this. One more question, it was brought up on a previous thread, suppose the lender determined one or more of the cosmetic items were also to be repaired per their requirements. And they also wanted the appraiser to conduct a final on these cosmetic repairs just to confirm they have been done.

Would the appraiser add these to the CIR or a separate 442? Based on what I have read I would think they would have to go on a separate 442 report (or narrative letter format), is that correct?

 

[Rufus]

I think they call it a 203 program or something like that.

Yep, dog-gone close. 203k and yes, all the repairs are to be submitted by licensed contractors in their respecitive fields. You then do a simple 'as if average' appraisal and then deduct the repair costs for the as-is value.

 

[Marcia Langley]

TJ,

First, if the client-required repair were the only repair needed (there were no CB3 items) then your assignment is already complete. I'd accept a new assignment to verify a repair but I'd require that assignment in writing and have them make it clear exactly what they had asked to be done and what they need in the way of verification.

I'd be very careful not to pretend to be able verify anything I could not see or was not competent to do. I bring this up because sometimes client-required repairs result from home inspections or some other source and could involve most anything.

For example, I was once told by a client (before I ever visited the property) that the home inspector had found some roof decking damage visible only from the attic. On my initial visit I crawled all over that attic (balancing on joists and miserable, LOL) and could never find the flaw. It wouldn't have done any good to send me back for verification because I couldn't find the damage in the first place.

If it were an item I felt competent to report on, and the client assigned me to go report on it, I'd get it in writing and report it in a letter.

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If there were CB3 items to verify and the extra client-required item was one of the cosmetic items I had reported, I'd go ahead and add it to the completion report and identify it as not being associated with the HC but rather a client required repair. I'd still get the request in writing. With or without that extra item you would still say "all items complete" (if the CB3 items were).

 

[Blueprint]

I list and describe everything, cosmetic, followed by critical, that is in need of repair, in the condition segment on the first page, which usually flows over to page 3. Cosmetic is applied "as is" and needed are applied "subject to" directly into the SCA.

I list what the client needs to know/fix to make the subject property comply with FHA’s minimum property requirements, along with the cost to cure for the needed, in the addendum on page 3 and in the cost approach.

 

[ZZGAMAZZ]

Inspiring & encouraging advice from all. Often times advice on the Forum is based upon regulatory verbiage that can be confusing; but everyone on this thread is determined to explain the issues in a practical perspective. Some people, e.g., me, need to be spoonfed & I'm very appreciative of your patience & courtesy.