Sometimes opening an appraisal report can feel like being on a bad 70s game show. Door #1 opens to reveal your prize and it's a car, not a coffee cup. Everything's great for two seconds. Then you learn that the car may have a problem that could render it worthless. Then again, it may not. What do you do? Cut your losses and choose Door #2, or invest more time and bank on Door #1?
In the appraisal game, lenders aren't playing for prizes. But they can still be surprised by what they find behind the doors of their subject properties. Imagine that after a week of anticipation, you finally see the appraisal report you're awaiting in your inbox. You open it up and speed down the page to see the value. It's a win. It's high enough to do the loan. You're almost celebrating the win when you see it. The report says the value is subject to a repair. Now what are you going to do?
First of all, don't panic. The reality is that with most lender and FHA requirements, as well as the general condition of most homes, there are a significant percentage of homes that need repair before they are eligible for a loan. In itself, it's not a negative for an appraiser to note that repairs need to be done. Most homeowners know they needed to get that hole in the ceiling, or crack in the glass, or the roof leak fixed. They just haven't gotten around to doing it – probably because they never had a need to.
Remember, when an appraiser lists repairs that are needed on the property, he or she is simply providing information to the lender. It's up to the lender to decide what to do. Information is a good thing. That information could prevent a major issue down the road. Let's say there was a small crack in the foundation. That crack could lead to an entire structural failure – but how could the homeowner, or seller, know this? An appraiser is trained to spot these things, note them, take a photograph then leave it up to the lender to decide what to do. Appraisers appraise everything "as is." The house could be literally on fire and the appraiser could report that the "house is currently on fire, value is for burnt house and land, as is," which would be not only perfectly acceptable, but actually preferable. It's the lender's choice whether or not it wants to make a loan on that type of property – not the appraiser's.
Contact the AMC or appraiser directly to determine the extent of the issues. Repairs like broken glass and other minor cosmetic issues can be very minor and easily fixed. Others may be instant deal killers that there is no point of attempting. Find out the bare minimum cost to remove the condition. Think of a MacGuyver fix. It doesn't have to be pretty. It just has to work. If the homeowner needs to secure a second story door due to safety issue, they don't have to buy bars for the outside. They can simply screw the door shut from the top, which fixes the issue from a functional standpoint.
Once repairs are completed, always confirm everything is done before the appraiser goes back out for a re-inspection. If the appraiser goes back out and its not done, not done correctly or only fixed halfway, not only will you be disappointed, you've also wasted the borrower's and the appraiser's time. Generally speaking, borrowers don't know everything about repairs, from start to finish, so it's a good idea to have someone confirm what needs to be done.
As the old adage goes, an ounce of prevention is worth a pound of cure. Being proactive is your biggest ally when it comes to potential repairs. Find out about the condition of the property when you are talking with your borrowers, before an appraiser steps foot on the property. At Coester Appraisal Group, we believe in prevention rather than last minute scrambling, so we offer a free pre-appraisal checklist of the specific things appraisers look for during an inspection. Our clients tell us that having their borrowers review the checklist with the loan package is a huge part of ensuring a smooth transaction because it can prevent the condition and the re-inspection, which of course can speed up the loan closing process.
Open the lines of communication between you and your borrowers, and between you and your AMC or appraiser. Not all properties will require repair but if they do, your best course of action is to keep a level head and approach the issue methodically. Many repairs are minor issues that can be rectified almost immediately and for very little money. What looks like a deal-killer could easily be a false alarm.
