VA and FHA appraisal challenges

Happy Weber Weekly Wednesday! This past week was a challenge so I wanted to share part of our experience with you to spread some knowledge.

When searching for a home you may come across listings that are described as “fixers” and the listing agent has disclosed that the home will not “go VA or FHA”. This is an indicator that the house needs some major work and will not pass health and safety codes for VA or FHA loans unless the issues are address and fixed prior to closing escrow. Most sellers will not want to deal with a delayed escrow and will only consider offers that are either conventional or cash, depending on how much work is required.

In the deal I am currently working on, the house is in fairly good condition and we did not see any major indicators that we would have a problem with our appraisal. The job of the appraiser is to be the lender’s eyes and make sure the house is valued at the price they are giving a loan on and additionally for VA and FHA loans, to report that there are no health or safety issues. Because there is a converted garage that was unpermitted, we expected the appraiser to not count the square feet as part of the dollar worth to the home. Meaning, the house would be valued as a 2 bedroom 1 bathroom home instead of a 3 bedroom 2 bathroom home. Also, because it is not permitted we knew that the worst case scenario would be that they might require us to take down/out the work that was done and convert it back to it’s original condition as a functioning garage. Because we knew going into this home that this could be a potential issue it was agreed upon prior to entering escrow that the work would be done by the buyer.

The appraisal report came in at value but with the following requested repairs:
-Remove/repair bars on bedroom windows (to allow for emergency fire escape)
-Properly brace and strap the water heater (safety code for all homes)
-Chipped paint on garage door to be removed and repainted
-One light switch cover to be replaced
*Repair/replace missing overhead door hardware at the garage

Even after all the work my client put in to get the garage door to open, the appraiser re inspection did not pass. We now need to go back out and get it professionally done so that it does not get flagged as a “health and safety concern”.

My advice to all buyers and sellers is to know what your potential challenges will be when submitting/selecting an offer on an older home and on anything that has unpermitted work. Also, be sure to negotiate worst case scenarios prior to entering in escrow.

My veteran buyer, my lender, and my team are all continuing to work together and push forward to make this deal happen and hopefully he will have the keys to his home by the end of this week. Wish us the best of luck and I’ll be sure to keep you posted!

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