XI, 405.08: Property Condition (11/01/05)
Based on the factual data of the improvement analysis, the appraiser must express an opinion on the appraisal report form about the condition of the improvements. We expect that appraisals based on an interior and exterior inspection will include a complete visual inspection of the accessible areas of the property. The appraiser is not responsible for hidden or unapparent conditions. The appraiser must report any condition that may affect the value or marketability of the subject property in factual, specific terms. The appraiser also is responsible for noting in the appraisal report any adverse conditions (such as, but not limited to, needed repairs; deterioration; the presence of hazardous wastes, toxic substances, or adverse environmental conditions; etc.) that were apparent during the inspection of the property or that he or she became aware of during the research involved in performing the appraisal.
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The appraiser must report detrimental conditions of the improvements even if the conditions also are typical for competing properties. For instance, the appraiser should note if a property is characterized by deferred maintenance or a lack of updating even if the same condition applies to competing properties in the neighborhood.
The appraiser must consider all factors that have an impact on value and marketability in the development of the appraisal report. The appraiser is expected to consider and describe the overall quality and condition of the property and identify items that require immediate repair as well as items where maintenance may have been deferred, which may or may not require immediate repair. The appraiser must address any needed repairs or any physical, FUNCTIONAL, or external inadequacies in the “comments” section of the appraisal.
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We permit an appraisal to be based upon 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 include worn floor finishes or carpet, minor plumbing leaks, holes in window screens, or cracked window glass. Minor conditions and deferred maintenance are typically due to normal wear and tear from the aging process and the occupancy of the property. While such conditions generally do not rise to the level of a “required repair,” they must be reported.
The appraiser must identify physical deficiencies that could affect the soundness, structural integrity, or livability of the property as part of the appraiser’s 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.
{** SUGGEST....this includes an inoperable 30 yr old furnace}
When such deficiencies exist or improvements are incomplete, the property must be appraised subject to completion of the specific alterations or repairs. In situations where a condition may need repair but the appraiser may not be qualified to make that decision, the appraiser must appraise the property subject to a satisfactory 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 to us. The appraiser may be asked to revise his or her appraisal based upon the results of the inspection, in which case the appraiser would incorporate the results of the inspection and measure the impact, if any on the appraiser’s final opinion of value.
The lender must review the appraisal report to ensure that the appraiser has not indicated any physical deficiencies or conditions that would affect the livability, soundness, or structural integrity of the property. When there are none, the lender does not need to require minor repairs to be completed before it delivers the mortgage to us. When improvements are incomplete or conditions exist that affect the livability, soundness, or structural integrity of the property, the property must be appraised subject to completion of the specific alterations or repairs. Additionally, the alterations or repairs must be performed, and the lender must obtain a completion report from an appraiser, before it delivers the mortgage to us.
Lenders must take the necessary steps to ensure that a property represents adequate collateral for the mortgage loan. In addition, we recommend that lenders disclose all known property condition issues to the borrower so that the borrower may take any necessary actions to address such issues.
