Welcome Houston,
It depends. Is it a safety or structural issue? If so, make it subject to repair on a hypo condition that repairs have been completed (check box2) or subject to an extraordinary assump that it doesn't need repair (cb 3).
One need to be careful in not to set him/herself up as code police. But if it is an obvious one, then you say "Houston...we've got a problem"
Here is Fannie's take on as is vs subject to
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=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]
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