Only 1 of 2 water heaters functional / appraisal withheld

[Alexs]

Conventional loan. Property has two water heaters: WH1 serves the kitchen and one bathroom, WH2 serves the other two bathrooms. WH1 is not functioning and the appraiser requires it to be fixed ("subject to: ensure hot water is available at all applicable faucets").
Is this a valid requirement?

The only mention I found in Fannie Mae documentation that is marginally relevant (Appraisal and Property-Related FAQs):
Q22. Will Fannie Mae lend on a property where the utilities were not turned on at the time of the appraisal inspection?
Yes. Fannie Mae does not require that the utilities that serve the property be turned on at the time of the inspection.

It seems to me there is a huge gap between the above and a requirement that there is running hot water at ALL faucets.
I may be missing something, so I would really appreciate it if someone can point me to documentation that clarifies this issue.
Thank you!

 

[Russ Kitzberger]

If the appraisal is not made subject to the water heater replacement:
The value needs to reflect the non-functioning water heater; The analysis of this would be more complicated than a normal project.

The lender probably has some requirement that all mechanicals should be operational, they frequently have many terms and conditions that they don't tell the borrower about. Nearly all lenders want utilities on and all mechanicals working; they overlay that requirement on top of the minimums from FNMA/GSE's.

 

[Overimprovement]

Fannie doesn't lend money, it purchases mortgages. As Russ mentions, the lender, regardless of whether they keep a loan in house or sell it, may have their own requirements.
Bear in mind that the appraiser does not KNOW what the issue is, only that some faucets do not have hot water. Could be a more serious issue. Appraiser cannot just state $500 will fix the issue. It well may, but we are not home inspectors, we merely observe and report. What if the true issue were a busted hot water line under the concrete slab serving one or more of those faucets? The appraiser says, no problem, $500 to fix and house is good. But what I just described can get over $10K to fix.

Just stating a scenario, not suggesting that is the case here at all.

If in fact it is just a bad water heater, and if electric, they are fairly easy to repair often times. A plumber may be able to fix it in one hour. Even a full replacement should be less then $1,000 including labor, unless its lup in an attic or deep in a crawlspace.

Good luck!

 

[Mike Ault]

Does the nonfunctioning water heater affect the "livability" of the property? If the answer is "yes" then the appraisal is to be conditioned on repair of that item per Fannie Mae requirements. The answer would have been "yes" on my appraisal.

 

[glenn walker]

Conventional loan. Property has two water heaters: WH1 serves the kitchen and one bathroom, WH2 serves the other two bathrooms. WH1 is not functioning and the appraiser requires it to be fixed ("subject to: ensure hot water is available at all applicable faucets").
Is this a valid requirement?

The only mention I found in Fannie Mae documentation that is marginally relevant (Appraisal and Property-Related FAQs):
Q22. Will Fannie Mae lend on a property where the utilities were not turned on at the time of the appraisal inspection?
Yes. Fannie Mae does not require that the utilities that serve the property be turned on at the time of the inspection.

It seems to me there is a huge gap between the above and a requirement that there is running hot water at ALL faucets.
I may be missing something, so I would really appreciate it if someone can point me to documentation that clarifies this issue.
Thank you!

Sounds like you are redoing a FHA on a fannies I would mention it but not make it a condition .

 

[Mike Ault]

From the latest Fannie Mae selling guide 06/02/2021 –

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 occuupancy 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.

In my opinion a nonfunctioning water heater is not a "minor condition due to normal wear and tear from the aging process" although 10 different appraisers could conceivably have 10 different opinions on the issue.

 

[glenn walker]

From the latest Fannie Mae selling guide 06/02/2021 –

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 occuupancy 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.

In my opinion a nonfunctioning water heater is not a "minor condition due to normal wear and tear from the aging process" although 10 different appraisers could conceivably have 10 different opinions on the issue.

I had a 40 Gallon in my area installed last month and it was $1,200 installed. To me thats a minor repair in today's world and I would do it "as is" but I would mention it and include a cost to cure and be done. On a Sale I am more stringent especially if the buyer doesn't know about it but on a refinance the owner lives in it and if he likes cold water so be it.

 

[Mike Ault]

I would never disagree with somebody who actually rode motorcycles with Malcolm Smith.…

 

[Jayjay25]

Conventional loan. Property has two water heaters: WH1 serves the kitchen and one bathroom, WH2 serves the other two bathrooms. WH1 is not functioning and the appraiser requires it to be fixed ("subject to: ensure hot water is available at all applicable faucets").
Is this a valid requirement?

The only mention I found in Fannie Mae documentation that is marginally relevant (Appraisal and Property-Related FAQs):
Q22. Will Fannie Mae lend on a property where the utilities were not turned on at the time of the appraisal inspection?
Yes. Fannie Mae does not require that the utilities that serve the property be turned on at the time of the inspection.

It seems to me there is a huge gap between the above and a requirement that there is running hot water at ALL faucets.
I may be missing something, so I would really appreciate it if someone can point me to documentation that clarifies this issue.
Thank you!

The requirement states that Fannie Mae does not require the utilities to be TURNED ON at inspection not that they can be non-functional. This can be determined by a test recently completed by a professional sometime prior to the appraisal. Could be a home inspection with a re-winterization afterwards or even the HUD/FHA condition report they complete for REO properties. Assuming they just work and checking “as is” seems risky and may lead to an incorrect condition rating. Sometimes I think they write things in a vague way intentionally.

 

[sputnam]

Of course, you must disclose that one water heater is not working. The rest of what you do depends on the assignment. Did the Client request as-is market value? If so, then you will try to determine the market reaction to having bathrooms without hot water and you will make the appropriate adjustment. If the Client tells you they want it subject to that repair... then that is what you do.